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African adventure: Tower Resources plc

Friday, July 25, 2008

Peter Kingston has a tale or two about breaking new frontiers – he was the reservoir engineer who planned the development of Shell’s Brent oilfield in the North Sea. Forty years on and now the chairman of AIM-listed Tower Resources plc, he is as excited as ever when it comes to frontier exploration – and this time his eye is on West Africa.

Tower is presently sitting on acreage in Uganda and Namibia, with high hopes in both cases. Licences on higher risk plays in the Saharawi Arab Democratic Republic have recently been added and more, including a licence under negotiation in Tanzania, are set to follow.

In Uganda, Tower’s onshore licence, EA5, covers around 6,000 sq km and lies close to where FTSE 100 player Tullow Oil plc is currently finding success. At the moment Tower is scouting the area for oil plays with a view to drilling a well within six months. Kingston is confident that it’s all to play for.

“We could still easily find a couple of hundred million barrels, possibly more,” he says. “And for a company of our size a hundred million barrels of reserves is not too bad thank you very much.”

In Namibia, Tower holds offshore licences that cover 22,000 sq km but lie 1,000 km away from any other discovery. Nevertheless, they still sit neatly on the West Africa trend and it’s here that Kingston’s attention is focused.

“We found a financial partner to carry us through the seismic and a couple of wells,” he explains. “Once we’d been through the data we shot some new seismic and evaluated it and what we came up with looks like extraordinarily exciting potential – potential for 10 billion barrels of oil.

“From a technical standpoint it actually looks quite low risk. I’ve been involved in a lot of very exciting things – and this compares with them all.”

Vanguard of North Sea development

Kingston started his career as a petroleum engineer working with Shell. After a string of international assignments he was brought in to work on projects in the North Sea, where he ultimately joined the vanguard of North Sea oil development.

“They were very exciting times – breaking new frontiers not just in engineering terms but in the way we did things,” he says.

He went on to consult for some big industry names including British Gas and PowerGen and was later heavily involved as a founder-director of Enterprise Oil plc. He also played a major role in the development of some of the UK’s significant onshore oil and gas projects including Humbly Grove and Wytch Farm.

“I left Enterprise on a high and went back to doing consulting work,” he says. “Later I became founder-chairman of Soco International plc, which is active in Vietnam now and I’m still deputy chairman there.

“During that period I started doing a lot of work on environmental and social management – things which I had already decided were going to become very important for the industry – and they have done.”

At Tower, Kingston works alongside oil industry veterans Peter Blakey and Peter Taylor, whose early labours in the sector saw them lay the groundwork for what went on to become Dana Petroleum plc.

The buying of licences and selling of companies was a process they went on to repeat many times as they scoured the globe for exploration opportunities which looked attractive but which industry hadn’t yet focused on.

“They did it again with some licences that were backed into what became Hardman Resources plc,” Kingston says. “That became very successful and was later bought out by Tullow Oil.

“Most of their ventures have been funded out of Australia and apart from Dana in the early days Tower is the only one funded from the UK.”

Good fortune

Tower started life in February 2006 when it was the outcome of a £4 million reverse takeover by Neptune Petroleum, which held the Ugandan and Namibian licences. The company is currently capitalised at around £27 million.

With Kingston brought in as non-executive chairman (later becoming executive chairman), the two Peters were soon enjoying some good fortune with the Ugandan interests. Tullow Oil, which was operating in neighbouring blocks, started making discoveries.

“Literally three months after signing the production-sharing agreement the first oil well was drilled by Tullow Oil,” Kingston says. “Since then they’ve drilled eleven wells and every one of them has contained oil.”

Under the guidance of exploration geologist Jim Webb and geophysical guru Frank Collar, Tower is now picking well locations with the hope of reproducing that success.

But it hasn’t all been straightforward. Indeed, the company’s farm-in partner in Uganda, Orca Exploration, has interpreted somewhat mixed results from the surveys. Sediment depths have proved to be shallower than expected, which has changed its perceived risk profile of the project.

“The sediments are at about half the depth expected,” Kingston says. “But that’s still well within the window of discoveries which are being made by Tullow. So the risk associated with hydrocarbon generation is definitely higher. We’re pretty confident that it once had hydrocarbons in it, and a lot of evidence points to the fact that it still does. But the risk is higher in that respect.

“It may not quite have the predicted scale but we could quite easily have something – particularly as Tullow gets closer and closer with the successful wells. The closer they get the more chance there is that we have it ourselves.”

Kingston reckons that if Tower can prove the existence of hydrocarbons then it’s likely Orca will take up its full commitment or part of its commitment. But there is a chance Orca will pull out, leaving Tower with the challenge of bringing in other partners or raising the funds itself.

“It should be easier to find some new institutions to come in with funding on the basis that Uganda is still low risk – but were it to fail then investors would have still got Namibia to come, which looks by far the more exciting of the two at the moment,” he says.

And it’s with the Namibian licences that Kingston is most excited, despite estimates that the company is still two years away from any big news there. Right now, further seismic and evaluation work is ongoing on what Kingston describes as three “very large” structures.

“One of those has quite a lot of data over it, so we have some confidence in that,” he says. “One has a few lines across it and we’ll need to do more work across that and then we have another structure which has 2D lines across it but it hasn’t had modern interpretation. We will fill in those gaps.”

Kingston believes the data interpretation will take the company into the middle of next year by which time it will have to propose wells anyway. “Our operator could decide to go for a well comparatively early,” he says. “So in less than two years we could be drilling a well. That’ll be an exciting time, I can tell you.”

In addition, the company recently paid £50,000 in shares for another of the two Peters’ interests - Comet Petroleum. Comet has a 50pc stake in two exploration licences in the Saharawi Arab Democratic Republic (SADR). Another deal has also just been sealed in Tanzania.

“It’s pretty high risk but then the others were pretty high risk when we started,” Kingston says. “You don’t know until you’ve done some of the basic exploration work. But like Comet and the new potential licence in Tanzania I think there will be more deals to come.

“In terms of timescales it was always going to be a few years,” he continues. “But we’re getting to the stage now where we’re within six months of drilling a well in Uganda and the first well in Namibia may be a couple of years off. We now have a story to tell and we are close enough to action to stimulate some interest.”

Ben Hobson, SmallCapNews.co.uk