TAG Oil Ltd. (TAO:TSX.V; TAOIF:OTCQX) is expected to begin fracture stimulation in the BED 1-7 vertical well of the Abu Roash "F" reservoirs in the Badr Oil Field, with initial flow rates anticipated to commence in late April 2023, according to Market Analyst Bill Newman, in a March 30, 2023 research note.
The company focuses on oil and gas exploration, drilling, and development in the Middle East and has invested its capital in a promising section of Egypt.
While the TAG is still completing an active exploration program of the land, Newman points out that "During recompletion operations, oil from the ARF was recovered to surface and the formation was close to original reservoir pressures."
Review of Results
Newman presented the key points of TAG Oil's latest reports.
The company has multiple catalysts coming up in 2023 with the expectation of BED-7 vertical well flow test results coming in late April. TAG Oil also anticipates the spud of T100, the company's horizontal well — sometime in the summer of 2023 and plans to release the results of this test in Q4 of this year.
Recompletion operations by the company included the installation of a new well head on the initial site, removal of outdated production tubing, and isolation of previously drilled zones of the Abu Roash "F" formations. Newman notes that "the BED 1-7 well previously tested up to 418 bbl/d, unstimulated, and produced 20,000 barrels over a one-year period."
TAG intends to release the initial flow-back results of the upper third of the pay zone in late April.
Despite initial promising drill results, Newman maintains the company as a Speculative Buy, with a target price of CA$1.35 due to a few main risks.
The first potential issue is that, while Tag has conducted a detailed analysis of the drilling zone, there is yet to be a guarantee of the commerciality of the shale oil play. In the financial sector of the company, there is also a possibility that the company may run into issues scaling up production to the necessary level to work independently, as it is currently running on working capital.
As an international company working out of Egypt, TAG must also take on the risk of fluctuations in international currency as well as the political risks of working in a foreign nation whose laws can change at any time. Egypt extensively regulates foreign drilling operations and can interrupt production activities while enacting pricing, tax, and royalty changes and implementing export restrictions. TAG's success will greatly rely on the Egyptian Government's goodwill.
Structure and Predictions
TAG Oil is working with capital from previously held assets located in both New Zealand and Australia, holding 2.5% and 3% royalty rates with each respectively.
Newman's research report shares recent rating and target price information as well as current market data on the company:
- Rating: Speculative Buy
- Price: CA$0.61, with a 52-week range of CA$0.79-CA$0.20
- Price Target: CA$1.35
- Market Cap: CA$94.60 million
- Projected Return: 121.31%
The company carries an enterprise value of CA$70.6 million and a net debt of CA$24 million. TAG Oil's share structure breaks down to 155 million basic shares and 169.9 million fully diluted shares.
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