Tower Resources, a small-cap explorer listed on London’s AIM, is now breathing rarified air thanks to a deal announced in early January.
The farm-out deal was long in the waiting, as the company had been trying for a deal for several years, against a market backdrop that was far more challenging than when the process began.
In truth, many investors bar the most patient and faithful had likely written off the explorer’s chances of getting a deal done.
Tower will receive $4.38 million in cash from new partner Prime Global Energies, a UK company with substantial producing assets in Pakistan, which is also committed to around $15 million of investment in Tower’s flagship assets, once the transaction is completed.
With a deal now in place and an injection of funds on the way, Tower and its team led by chairman and CEO Jeremy Asher is starting 2025 with two things going for it that most other small-cap oil and gas firms do not – an active, fully-funded well happening this year, and sufficient capital that it can focus on its assets without issuing new shares.
Some uncertainties remain
Tower boss Asher is confident that the explorer will achieve its plan, to drill the NJOM-3 well, on the Njonji discovery, in Cameroon, on target later this year.
Success with the well will kick off a field development project, ultimately delivering cashflows and revenue, but as Asher explains, a few regulatory boxes need to be ticked before a rig contract can be signed, and a timeline is finalised.
NJOM-3 could be the first well in a multi-well campaign that would establish ‘early production’
Asher is upbeat about the well’s chances, with high confidence that the project will be commercially viable.
What the NJOM-3 well is intended to do is confirm some specificity over volumes. It will deliver the hard data to allow a more specified development and early production plan.
NJOM-3 follows up original discovery wells drilled by Total, over a decade ago, which were not at that time tested – moreover, subsequent analysis shows these wells were not optimally located nor did they access all possible reservoir zones in the area.
With up-to-date insights, based on its team’s technical work, Tower intends to pin down a more definitive measure of the field’s potential.
Low risk, high potential
The field’s production potential could range from just a few thousand barrels per day, to several tens of thousands of barrels per day – but, in the relatively shallow waters where Njonji is based, even the lowest parts of the range will still hold commercial value for Tower. And there are many more prospective structures to explore once the Njonji structure is appraised and developed.
This may, perhaps, be the most appealing aspect of the project for investors.
The threshold for success is quite low, meanwhile, substantial potential remains for the well to significantly overdeliver.
NJOM-3 could be the first well in a multi-well campaign that would establish ‘early production’.
In this way, Asher describes it as a classic early production approach – in which the initial wells provide the basis for debt financing for a much larger eventual project.
First, however, the upcoming well must deliver reliable data to put the project on a path to commercialisation.
‘If you look at the original CPRs for the Njonji discovery, we observe that there’s a wide range of potential outcomes at the moment because Total never tested the reservoirs they encountered, and also even if they had, their two discovery wells for each of them were not in the optimal points.
‘As a result, they didn’t intersect all the reservoirs that appeared to be present on seismic. That’s why there’s a wide range of uncertainty over this development, which we hope the NJOM-3 well will largely resolve.
‘If you look at that CPR, we’ve got a low-end estimate of a 1,000 barrels a day, a base case of 2,000 barrels a day, and a high end of only 2,500 a day.
‘That is premised on the fact that there are wells nearby with initial production rates of three thousand barrels a day, but, generally there’s significant decline rates to factor in as well. We’re aware that we might find production volumes anywhere in those kind of ranges.
‘As far as we can see, any of them can be economic against the current prices.
‘Obviously, we’d much rather have higher volumes than lower volumes, but the most important thing of all is to know what you’ve got because if you know that it’s 1,800 barrels a day, you can set up all the planning and budgeting and equipment accordingly and it would work out very nicely.
‘You just don’t want to oversize yourself for big volume and then actually find lower volumes.’
Success can unlock non-dilutive financing
For Tower, the priority is to have a reliable number from the NJOM-3 tests that Asher and his team can then take to the bank, to secure debt financing for the rest of the wells needed to deliver the field into cash-generating early production.
‘We do have numbers in mind, we’ve already shared them publicly. It’s not a secret, but it’s also not a secret that there’s a wide range of possible rates, and that’s why we’re drilling this well in the way we’re drilling.’
Tower now has a few weeks and months to clear off the remaining regulatory box-ticking in-country, secure a rig, and nail down a drilling schedule.
These will be the next catalysts for shareholders and new investors, if they are to be rewarded for their patience and Tower Resources delivers on what’s always been a high potential speculative investment.
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
Saxo
Saxo
Get £200 back in trading fees
Trading 212
Trading 212
Free dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
Compare the best investing account for you
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
