ANOTHER XEL?14 Dec 2010 15:43
Anew entrant to Aim as of
Monday (29 Nov)
Madagascar Oil (MOIL:AIM)
is worth buying as it gears up
to develop two massive resources on
the Indian Ocean island.
The Tsimiroro heavy oil field and
Bemolanga bitumen deposit are both
long-term propositions but there are a
number of catalysts in 2011 capable of
closing the gap between the company’s
valuation and their potential worth.
According to an independent audit
by industry consultant Netherland
Sewell the net present value (NPV)
of Tsimiroro, based on an oil in place
estimate of 940 million barrels, is
$1.1 billion.
In September 2008 French energy
giant Total (FP:PA) gained a 60% interest
in Bemolanga and operatorship of
the project by agreeing to fund a $100
million work programme. The deposit
is estimated to contain 1.2 billion barrels
of bitumen, a tar-like form of
petroleum which has to be heated or
diluted before it will flow, with a further
one billion barrels of potential.
After this week’s £50.5 million capital
raising, Madagascar’s market cap is
£178.4 million, or $277.4 million based
on a sterling/dollar exchange rate
of $1.5550.
In the first quarter of next year the
company is expected to announce
results from 2010 drilling on Tsimiroro.
This could lead to an resource upgrade.
In the fourth quarter of 2011 it will start
a 12 to 18-month pilot steamflood operation
on the field aimed at proving up
its commerciality.
June should see Total move to the
next stage of the development of
Bemolanga, which is similar to the
Abathasca tar sands in Canada. This
would involve drilling 400 wells over
two years and confirming the method
of extraction.
In addition to its core assets, the company
has three 100%-owned exploration
blocks directly to the south of Tsimiroro
and will update the market on drillable
prospects across this acreage early in
the New Year.
Neither Tsimiroro or Bemolanga are
exploration plays. Both blocks have
been subject to previous development
efforts going back to the early 1900s.
Madagascar plans to succeed where others
have failed on Tsimiroro by using
steamflood technology.
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