Tower Resources Plc (AIM:TRP): Could Avivi-1 be a Company Maker?

Tower Resources is an AIM listed oil and gas exploration company with interests in sub-Saharan Africa, principally in Uganda and Namibia.  Its two key assets are a 100% exploration licence in block 5 of the Ugandan Albertine Basin which is operated through its subsidiary Neptune Petroleum and a carried 15% Licence interest in Namibia. [ref] Tower Resource Website - http://www.towerresources.co.uk [/ref] . Other operators in Uganda include Tullow Oil Plc and Heritage Oil who have enjoyed much documented success to date proving P50 reserves of over 700mm barrels.  

The Namibia asset is due to move into its next phase during Q1 2010 through a 3D seismic study, based on analysis to date it is estimated that the licence contains a multi billion barrel resource structure. [ref] Analyst Research Report, http://www.towerresources.co.uk/uploads/tower130110outlook.pdf [/ref] The near term focus for Tower, however, will be on Exploration Area 5 (EA5) within the Albertine Basin as they are about to embark on their second exploration well.  With the potential for a 100m barrel discovery, the second well named Avivi-1 [ref] Uganda - Avivi-1 Well Location - http://www.towerresources.co.uk/news/61/65/Uganda---Avivi-1-Well-Location.html [/ref] which is due to be drilled early February, has the potential to be a company maker. [ref] Analyst Research Report, http://www.towerresources.co.uk/uploads/tower130110outlook.pdf [/ref]

Drilling of the first well named Iti-1 took place late May to early June 2009 and initially provided the company with inconclusive results which resulted in well abandonment on 15 June 2009.  Subsequently the results were reappraised by an expert independent sedimentologist [ref] Tower Resources revises Iti-1 conclusions - http://www.towerresources.co.uk/news/58/65/Tower-Resources-revises-Iti-1-conclusions.html [/ref] who concluded that Iti-1 has the potential to contain oil in a 15-20m interval within a 35m gross basal sandstone reservoir located on basement.

In terms of company valuation post drill, the recent Eni bid for the Heritage’s Albertine Basin assets gives a $5 per barrel in the ground benchmark. Based on the minimum viable commercial find of 25/30mm barrels, a net asset value of up to $125m could be realistic which would equate to and sp equivalent of around 7p capitalising the company at circa £70m. [ref] Analyst Research Report. http://www.towerresources.co.uk/uploads/tower130110outlook.pdf [/ref] .  However, a target find of 100mm barrels using the same benchmark would provide a major valuation upside.

Tower have rated the Avivi-1 as a 1 in 3 chance of success which is high by industry standards. [ref] Analyst Research Report, http://www.towerresources.co.uk/uploads/tower130110outlook.pdf [/ref] There is certainly an air of optimism surrounding Tower at present as investors hope that the experience of Iti-1 coupled with a better understanding of the area will provide them with the company maker.  An exploration failure would mean a long wait for the company and its investors until the next proposed drill scheduled for late 2011 in Namibia.

Disclaimer: The author has an investment in Tower Resources