May 24th 2012
ADX Energy: Sidi Dhaher well transformational for
this emerging oil producer
ADX Energy (ASX: ADX) is poised to prove that it is all about the oil as it takes
steps in its expected transition into an oil producer.
Production testing of the Sidi Dhaher-1 in the onshore Chorbane Block,
Tunisia, is set to begin soon with the test rig now on site, potentially confirming
both flow rates and reserves as well as providing a source of cash flow.
Further activities towards the transition to a producer are drilling an appraisal of
the Dougga gas condensate field and testing of the Lambouka well offshore
Tunisia.
The Company has also secured a farm in partner which will provide significant
funding for the highly prospective onshore Parta Concession in Romania, and
is planning to shoot seismic and drill a well there in 2013.
Share Price: A$0.08
Issued Shares: 438.3 million
Market Cap: A$35.0 million
ANALYSIS
ADX Energys Sidi Dhaher oil discovery is poised for producing with the rig
contract in place, key personnel in place and support camp and drilling rig
mobilised.
A successful production test would be transformational and underpin the future
of the Company providing near term cash flow potential.
Success at Sidi Dhaher will also serve to de risk several other prospects and
leads in the Chorbane permit.
Further valuation upside could come from a successful appraisal of the Dougga
gas condensate find and/or testing of the Lambouka discovery, both of which
could be undertaken under the same campaign.
The new moderate pro-development government in Tunisia, coupled with a well established oil and gas infrastructure
that connects with local and export markets in Europe are likely to result in quick commercialisation with excellent
pricing.
ADX also has a track record for securing farm-in partners, which had helped to spread and de-risk its Tunisian
exploration programs.
This was proven again when it signed up Austrias Rohoelaufsuchungsgesellschaft as its farm in partner to help defray
the costs of exploring the Parta Block in Romania.
The completion of testing at the Sidi Dhaher-1 in the first half of 2012 should be an inflexion point for the Company.
A successful commercial production test at Sidi Dhaher-1 would assist to underwrite the future of the Company. A
positive result could take ADX Energy to early cash flows and possibly become an oil producer in a six month time
frame.
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BACKGROUND
ADX Energy is an ASX listed oil and gas explorer with five oil and gas permits in North Africa, the Mediterranean and
Central Europe, and retains an interest in gold and base metals through a 31.28% stake in Riedel Resources (ASX:
RIE).
ADX Energy acts as operator and has established a $60M exploration program with $12M of shareholder funds, and
farm-outs to venture partners who pay the balance of exploration and development expenditures.
These farm-outs have been very successful with the first two wells resulting in both an onshore oil discovery, and an
offshore gas discovery that should establish the Company as an emerging oil and gas producer.
The Company has also acquired the first Geostreamer 3D seismic survey for offshore Tunisia that resulted in the
discovery at Lambouka and a significant resources upgrade and de-risking of the Dougga condensate field.
Geostreamer technology eliminates interference that is picked up by conventional hydrophone technology and presents
sharper and clearer images of subsurface formations for further evaluation.
A data exchange has also been executed with Shell who completed an offshore 2D seismic survey in the Sicily Channel
that abuts and covers part of the Kerkouane Block. This includes a highly prospective Cretaceous Formation that
extends out from the historic Kerkouane-1 well within the ADX Energy controlled block, and has potential to contain
significant volumes of hydrocarbons.
The political situation appears to have stabilised in Tunisia, where the revolution was followed by democratic elections
that elected a moderate Islamist government. Tunisia maintains an open banking and legal system, along with a civil
society that is managed by a competent and well educated public service.
ADX Energy is utilising a well developed oil and gas infrastructure that connects with local and export markets into
nearby Europe that provides a strong demand for energy products, and excellent pricing for oil and gas.
MANAGEMENT
Wolfgang Zimmer is the Managing Director, and has 32 years experience in the oil and gas industry. He previously
worked with Mobil Oil in Europe and the USA in oil & gas exploration and production, and with OMV where he served in
a variety of senior management roles that included the establishment of an exploration and energy production business
in Australia, New Zealand, and Tunisia. Most recently he was the CEO of Grove Energy of Canada that merged with
other interests in 2007.
Ian Tchacos serves as Chairman, and has over 25 years of international experience in corporate development and
strategy, mergers and acquisitions, petroleum exploration, development and production operations, commercial
negotiation, oil and gas marketing and energy financing. He was previously the Managing Director of Nexus Energy and
was responsible for developing the Company from a micro-cap explorer to an ASX top 200 offshore producer of oil and
gas.
Paul Fink serves as Technical Director, and has 18 years experience in diversified oil and gas exploration and
production in both technical and managerial positions. He also worked for OMV in exploration and production
assignments on a global basis, headed his own petroleum consulting business, and operated a highly successful
exploration campaign for Focus Energy.
Andrew Childs serves as Non Executive Director and is also a Non Executive Director of Riedel Resources Limited,
Managing Director of Petroleum Ventures Pty Ltd, Chairman of Australian Oil Company Ltd and Non Executive Director
of Timor Oil Ltd, Orion Energy Pty Ltd and Bombora Energy Pty Ltd. Andrew is also Principal of Resource Recruitment
and Managing Director of International Recruitment Services Pty Ltd.
FUNDING AND SHAREHOLDERS
J.P. Morgan Nominees hold 105.48 million shares, with the top 20 shareholders controlling 398.95 million shares prior
to the recent placement and issue.
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ADX held A$1.03 million in cash of the end of March 2012 and also owns 25 million shares, or 31.28%, of Riedel
Resources (ASX: RIE), worth a current A$2.62 million. Additional funding of A$4.2 million for the farm out of the
Romanian Part permit to RAG will also be received shortly.
The Company has issued 28.8 million unlisted options exercisable between 31 December 2012 and 28 February 2014
at various prices from $0.25 - $0.45, that are currently out of the money.
CHORBANE BLOCK, ONSHORE TUNISIA
The Chorbane Block covers 2,428 square kilometres in central Tunisia, near the port city of Sfax, and has all the
hallmarks of a highly prospective oil and gas asset.
It contains large undrilled structures high quality seismic available over prospects and leads, and is surrounded by
several producing oil fields that contain extensive oil and gas infrastructure for collection and distribution of
hydrocarbons.
Sidi Dhaher-1 was discovered in October 2011 after the ADX led joint venture intersected a 30 metre column of live
crude oil with minor amounts of water and a good seal in the Cretaceous Bireno formation.
The Bireno hosts a number of producing fields in the area and the structure intersected here has been estimated to hold
mean in-place oil of 51 million barrels. The confirmation of recoverable volumes and resulting potential reserves are
contingent upon a successful well test with the objective of proving commercial flow rates and likely recovery factors.
High quality seismic was also obtained over additional prospects and leads within the block and has defined a number
of new drilling opportunities within the block.
Following the discovery of a 30m oil column at Sidi Dhaher-1, ADX secured a contract with Dietswell SA for the
provision of the Sedlar 160 drilling rig to flow test the Sidi Dhaher-1 oil discovery.
Key personnel required for the program were recruited and mobilised during the quarter. The rig and auxiliary
equipment are currently on site with flow testing expected to start soon.
ADX also continued to engage with the local population preparing and negotiating environmental compensation
agreements and work contracts.
Approval of the testing programme was granted by Enterprise Tunisienne dActivités Petrolieres (ETAP) and the
operational work program agreed and finalised by the joint venture.
The results of the Sidi Dhaher-1 well test will be a major factor in ADXs plans for the medium term. A success could
inspire the Company to carry out further studies to better understand the structure and drilling to boost production.
ADX has a 40% interest in Chorbane while other partners include Gulfsands Petroleum Plc 40%, XState Resources Ltd
10% (ASX: XST), and Verus Investments Limited 10% (ASX: VIL).
SICILY CHANNEL BLOCKS, OFFSHORE TUNISIA AND ITALY
The Sicily Channel Blocks consist of three existing gas and condensate discoveries which are 60% owned, and include
the Dougga gas condensate field that was independently assessed by Tracs AGR at 239 billion cubic feet (Bcf) of gas
and 41 million barrels (MMbbl) of liquids, along with the 60% owned Lambouka and Kerkouane that have been
estimated by ADX Energy at about 254 million barrels of oil equivalent (MMboe).
Additional prospective exploration prospects defined on 3D seismic total 410MMboe, and on 2D seismic total a
prospective resource of 570MMboe.
A new 100% owned Italian licence has been added that is contiguous with the Kerkouane discovery, and on a
combined basis forms a contingent and prospective resource of 1.5 billion barrels of oil equivalents for the entire project
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area.
ADX believes that resources at Dougga may be higher as recent 3D seismic depth work has confirmed that the Dougga
structure has a much lower/ deeper gas water contact than the one utilised for the Tracs estimate.
The Company has a mean in house estimate of 110MMboe for Dougga.
The seismic has also allowed ADX to identify a 30.6 square kilometres satellite structural closure of Dougga. Dougga
West has estimated mean recoverable resources of 226MMboe.
Lambouka was discovered by the Lambouka-1 well was drilled in mid 2010 in around 625m of water to a total
measured depth of 2,786m, before being suspended for future re-entry.
Located just 12 kilometres from Dougga, it hosts contingent mean recoverable gas resources of 309Bbf of gas, and has
both an appraisal opportunity and potential upside from a deeper reservoir formation that has not been drilled.
The close proximity of Lambouka, Dougga, Dougga West and other leads offers ADX the opportunity to develop them
together as a single project.
This proposed Dougga Hub is close to the Tunisian shore, existing infrastructure and high price markets both locally
and in Europe.
The Kerkouane Block contains the historic Kerkouane-1 discovery that was drilled at a shallow water depth of 108
metres by Shell in 1981, and produced massive gas kicks and solvent shows from the Ain Grab, and Nilde Limestones,
that were intersected above 1,352 metres. A nearby oil field in Italian waters, the Nilde field, has produced around 30
mmbbls of oil from this reservoir.
However, Kerkouane-1 failed to reach the primary target Abiod Limestone and was never tested. The deeper
Cretaceous Abiod reservoir may carry significant volumes of hydrocarbons.
ADX is currently conducting a data exchange agreement with Shell who operate adjoining permits for 104 kilometres of
2D seismic, which is aimed at defining significant targets around Kerkouane.
ROMANIAN PARTA BLOCK
While Tunisia is the focus of ADX's attention, the Company has also recently reached a farm-in agreement with
Rohoelaufsuchungsgesellschaft, who will take a 50% stake in the Parta Block, which is located in a proven and
producing hydrocarbon province in Romania.
The Austrian company will make an upfront payment to ADX and will earn the stake by paying past costs and a
promoted share of future costs prior to the start of the seismic program.
The 1,221 square kilometre area contains 40 identified oil and gas leads that can be evaluated with low cost seismic
and drilling programs.
While several oil and gas fields with total discovered proved and probable reserves of 12MMbble of oil and 50Bcf of gas
have been made in the block since the late 1960s, it is still considered to be underexplored and lacks modern 2D and
3D seismic data.
ADX plans to remedy this in part through its committed work program.
This consists of the reprocessing of 300 kilometres of seismic, acquiring 100 square kilometres of new 3D seismic and
100 kilometres of new 2D seismic as well as drilling 2 wells.
It has already completed geotechnical studies that have identified two independent fairways within the migration
pathway of the MAKO source kitchen.
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The MAKO trough contains the Algyo Field in Hungary which has historical production of 2.6 trillion cubic feet of gas
and 225MMbbl of oil.
Romania has a favourable tax and royalty regime and has easy access to local infrastructure and European markets.
Riedel Resources MINERAL INTERESTS
Besides its oil and gas assets, ADX also holds 31.28% of Riedel Resources (ASX: RIE), which it spun-off in 2010.
Riedel holds the Mt. Webb, Marymia, Millrose and Cheritons gold and base metal projects in Western Australia.
These have existing inferred gold resources with potential for expansion, along with mature drill ready targets for gold,
copper and gold, and nickel.
Riedel has also acquired gold tenements in Burkina Faso where early stage surface sampling and auger drilling are
underway.
CATALYSTS WITHIN A YEAR
Testing at Sidi Dhaher-1 to confirm commercial flow rates and reservoir size.
Completion of 2D and 3D seismic at Parta opens up potential.
Farmout of Sicily Channel acreage.
Drilling and testing of a successful Dougga appraisal well may increase resource size and confirm commercial flow
rates.
Testing of Lambouka-1 to confirm resource estimates and another addition to Dougga-Hub.
Exploratory well adds speculative interest and potential materiality.
ANALYSIS
Sidi Dhaher-1 is surrounded by several producing oil fields and extensive oil and gas infrastructure which are significant
in terms of attractiveness to investors for funding any future development. Oil could be trucked to a nearby field where it
would enter a transportation pipeline, taking it south to a port for export.
The completion of testing at the Sidi Dhaher-1 in the first half of 2012 should be an inflexion point for the Company.
Success at Sidi Dhaher will also serve to de-risk several other prospects and leads in the Chorbane permit.
The offshore program in the Sicily Channel should attract attention with the appraisal drilling of the Dougga gas field,
and back to back testing of Lambouka-1. The drilling of an exploratory well on a prospect defined by 3D seismic and
proximal to Dougga within the Sicily Channel also has potential to provide very significant upside to the current market
capitalisation of the Company. This is expected to be de risked by securing a farm-in partner, a process that is
expected to gain from ADXs successful track record in doing so.
A successful commercial production test at Sidi Dhaher-1 would assist to underwrite the future of the Company. A
positive result could take ADX Energy to early cash flows and becoming an oil producer in a three to six month time
frame.
The confirmation of recoverable volumes and resulting potential reserves are contingent upon a successful well test
with the objective of proving commercial flow rates and likely recovery factors.
Actual flow rates and recovery will only be known once testing begins but assuming industry standard oil recovery of
35% and a US$100 (A$97.4) price per barrel of oil, Sidi Dhaher could be worth US$714 million over its life to ADX.
Taken further, Sidi Dhaher could have recoverable reserves of (conservatively) 10 to 17 mmbbls which would provide
ADX Energy with an entitlement of 4 to 6.8 mmbbls, or a gross worth of around $90 million or $0.20 per share. This is
against a current share price of $0.08 indicating significant upside potential for investors.
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