Co. Working To Unlock Great Oil Resources in Egypt
caught the attention of Echelon Capital Markets, which initiated coverage on it with a Speculative Buy rating and a CA$1.10 per share target price, analyst Adam Gill reported in a February 26 research note.
"We see solid upside potential in the stock," Gill wrote. "We believe Tag Oil is currently providing a very attractive risk-reward proposition."
The Canadian oil and gas company is currently trading at about CA$0.48 per share. The return to target from this price is 129%.
Unlocking the Potential
Gill discussed how TAG could achieve significant growth and value creation if its strategy for producing oil at its flagship asset in Egypt works.
Its approach is to use multifrack drilling and completion design on horizontal wells on the BED-1 concession in the Abu Roash "F" (ARF) formation. Whereas this technology rarely has been employed in this Middle Eastern country, TAG had success just last year using it on vertical well BED 1-7 in the ARF.
Subsequently, the company started to drill its first horizontal well, BED4-T100, on the concession but encountered some technical problems that caused delays. Since it has resolved them and recently restarted drilling. After drilling and completing, TAG intends to multifrack the well.
"While the stock has been heavy on the back of drilling complications, the potential in the ARF remains as it was before the delays," Gill wrote. "With that, we like the setup going forward."
If successful, the analyst pointed out, BED4-T100 will be the first of many producing wells, as the company has identified 20 potential well locations "backed by vertical wells targeting the lower formations" on the BED-1 concession.
Gill highlighted that by multifracking wells in these 20 spots, TAG could initially produce 1,000−1,500 barrels of oil a day (1−1.5 Mbbl/d) per well and provide 27,000,000 barrels of recoverable oil, based on resource estimates prepared by RPS Energy Canada.
According to the agreement in place, on production from the BED-100 concession, TAG will receive about 62% of revenue as a service fee, given the Brent oil price is between US$70 and US$90 a barrel.