The Canadian Tanganyika Oil Company Ltd. has recently published its consolidated financial statements for the nine months, which ended February 28, 2002. The Company is an international oil and gas exploration and production company, with its corporate headquarters in Vancouver, British Columbia, and with interests in exploration and development properties in Tanzania and Egypt.
The company began conducting oil and gas exploration in 1995 in Tanzania and in 1998, the company expanded its operations by acquiring exploration rights over an onshore concession in Egypt. Tanganyika's interest in the concession was subsequently reduced to 50 percent as a result of two farmout agreements. The concession produced Tanganyika's first oil discovery in June 1999 at the Hana Field.
During the current quarter, the company reached an agreement with Drucker Petroleum Inc. by which Tanganyika acquired all the issued and outstanding common shares of Drucker, which holds a 20 percent participating interest in the West Gharib concession in Egypt. The effective date of the share purchase agreement is February 1, 2002.
Under the terms of the agreement, Tanganyika would acquire Drucker for a purchase price of $250,000 and the issuance of 200,000 common shares in the capital stock of Tanganyika at a deemed share price of 0.50 Canadian dollars per share and the issuance of 800,000 special warrants of Tanganyika exercisable for no additional consideration.
Upon completion of the acquisition of Drucker, Tanganyika shall have a 70 percent participating interest in the West Gharib concession. The effect on the purchase is reflected on the financial statements for the quarter ended February 28, 2002.
Tanganyika's net loss for the quarter ended February 28, 2002 amounted to CAD$948,700 compared to CAD$706,600 for the quarter ended February 28, 2001. For the nine months ended February 28, 2002, the net loss amounted to CAD$1,803,400 compared to net loss of CAD$270,300 for the same period in 2001.
Revenue totaled to CAD$660,900 for the third quarter compared to CAD$1,572,000 for the third quarter 2001. For nine months ended February 28, 2002, revenues amounted to CAD$2,152,700 compared to CAD$5,121,300 for the same period in 2001. The sale of oil decreased from CAD$4,914,100 in February 28 2001, to CAD$2,080,400 in February 28, 2002. The decrease in sale of oil can be attributed mainly to the decline in production volumes together with lower prices.
According to a company press release, Tanganyika is making all efforts to increase production by drilling more exploration and development wells in addition to the completion of the workover program. The results are expected to be reflected at yearend results.
Service income decreased by CAD$194,400 in the nine month period due to the reduction of the level of work performed by the company as a joint venture operator. Production costs for the third quarter 2002 amounted to CAD$313,600 compared to CAD$568,700 for the third quarter 2001.
For nine months ended February 28, 2002, production costs totaled CAD$1,397,600 compared to CAD$1,272,900 for the corresponding period in 2001. The increase is due to increased operating costs in the form of equipment rental in order to maintain optimum production levels.
However, Tanganyika purchased two new triplex pumps to replace the rented ones. As a result, the increase in the production cost for nine months ended February 28, 2002 compared to nine months ended February 28, 2001 (CAD$124,700) is less than the increase in production cost for six months ended November 30, 2001 compared to six months ended November 30, 2000 (CAD$379,300).
The depletion decreased from CAD$1,250,600 in February 28, 2001 to CAD$683,800 in February 28, 2002. The decrease is due to the decline in production levels. For nine months ended February 28, 2002, salaries and other benefits amounted to CAD$318,700 compared to CAD$422,800 for the corresponding period in 2001. The decrease is mainly due to the closure of Tanganyika's office in Calgary in September 2001.
Included in general and administration costs for the nine months ended February 28, 2002 is an amount of CAD$290,900 relating to the closure of Calgary office. Accordingly, general and administration costs have been reduced from CAD$286,100 in the year 2001 to CAD$158,500 in the nine months ended February 28, 2002. The decrease is due to the steps been taken by the management to reduce the general and administration costs for the Egypt concession.
The bank charges and interest increased from CAD$16,300 in the nine months ended February 28, 2001 to CAD$331,900 in 2002. The increase is mainly due to the loan of CAD$2,000,000 obtained during the year together with a credit facility provided by a shareholder of the company.
During the nine months ended February 28, 2002 Tanganyika wrote-off CAD$94,039 of oil and gas concession interest which represents additional costs for Syria and Tanzania. However, the Company succeeded in obtaining a refund of CAD$154,800 from the Tanzanian Petroleum Development Corporation for VAT paid on fuel during the drilling program previously carried out by Tanganyika.
The effect of the purchase of Drucker's 20 percent interest in the Egyptian Concession is included in the balance sheet amounts. As at February 28, 2002 the consolidated balance sheet reflects an amount of CAD$4,620,100 capitalized under oil and gas interests compared to CAD$3,570,800 in the previous year.
The two amounts represent Tanganyika's investment in the Egyptian Concession.
Amounts receivable and other assets increased from CAD$856,200 at May 31, 2001 to CAD$1,045,410 at February 28, 2002. The February 28, 2002 amount includes CAD$779,300 relating to the sale of oil for the months of December 2001 and January and February 2002.
The inventory amounted to CAD$704,900 at February 28, 2002 compared to CAD$929,400 at May 31, 2001. The decrease is due to the sale of surplus inventory and the current drilling program. The amounts payable and accrued liabilities increased from CAD$2,923,000 at May 31, 2001 to CAD$3,695,000 at February 28, 2002. Included in the current quarter is an amount of CAD$400,000 (US$250,000), which represents a portion of the purchase price of Drucker Petroleum Inc.
Cash and short-term deposit at February 28, 2002 was CAD$1,072,500 compared to CAD$1,062,400 at May 31, 2001. During the nine month period ended February 28, 2002, Tanganyika advanced CAD$1,821,300 (US$1,137,500) to the Egyptian General Petroleum Corporation for the Company's share of the exploration commitment during the first extension period of three years.
As at February 28, 2002, Tanganyika had loans and accrued interest from a shareholder of CAD$3,133,200. These loans were used to pay a loan obtained last year from Quest Venture Ltd. of CAD$2,000,000 and accrued interest of 346,200. The balance was used to secure the amount due to the Egyptian General Petroleum Corporation for the first extension period and for general working capital purposes. These loans bear interest at a rate ranging between five percent to 12 percent per annum. In addition Tanganyika received advances of CAD$504,600 from directors. These advances bear interest at a rate ranging between five percent to 10 percent per annum.
During the current quarter Tanganyika completed a private placement to sell 4,000,000 units in the capital stock of the Company at a price of CAD$0.50 per unit. The net proceeds was CAD$1,976,300 after deducting share issue expenses. These funds were used for general working capital purposes.
Included in the current quarter is an amount of CAD$2,476,300 for the issuance of common shares and an amount of CAD$500,000 which represents the value of 800,000 special warrants and 200,000 common shares issued in connection with the purchase of Drucker Petroleum Inc.
The Hana Field, Egypt is currently producing approximately 2,100 barrels of oil per day from the Miocene Kareem formation, up from 1,100 bopd earlier in the year. The increase in production is attributed to a successful workover program on the Hana-5 and Hana-7 wells, as well as production contribution from the new Hana-9 well. Tanganyika's share of the gross field production is 35.7 percent.
The Hana-9 well was the first well of a three-well exploration program currently underway on the West Gharib Block. The well was successfully completed and brought on-stream in mid-February.
Tanganyika has initiated a comprehensive, ongoing workover and maintenance program for the Hana field in order to maximize production efficiency. In the Hana-5 well, sand fill was cleaned out and a down-hole jet pump was re-installed. Production from the well re-commenced in early April. The Hana-7 well was re-entered and re-perforated to enhance productivity.
Tanganyika intends to test an alternative artificial lift system using a Progressing Cavity Pump (PCP). Production performance using a PCP artificial lift system is expected to be superior to that of the down-hole hydraulic jet pumps, which are currently installed in all Hana wells. If successful, then PCP installation for other candidate wells will be considered.
The next workover will be on the Hana-8 well. The well was originally completed as both a Kareem and Rudeis producer, however, production has not yet been achieved from the Rudeis zone. The Rudeis pay zone will be re-completed in order to try to establish production from this zone. A service rig is on site to perform the workover.
Discussions are underway with EGPC and GUPCO on the possibility to tie-in to GUPCO's 18" pipeline which is some 6.5 kilometer from Hana field. If an agreement is reached, then significant reduction in the handling fees and increase in the Hana crude oil value can be realized. Both factors will translate to lower operating cost per barrel and improved net income. Oil from the Hana field is currently trucked to the Bakr processing facilities on the Gulf of Suez coast.
Hana-9, the first well of the current three-well exploration program on the West Gharib Block, was successfully drilled within the Hana field to a total depth of 6,550 feet, ending in the Middle Rudeis sands. The well penetrated a section of the Hana structure that dipped downwards against a fault, which resulted in the Rudeis formation coming in deeper than prognosis, thereby penetrating the targeted Upper Rudeis sands just below the oil-water contact.
However, the well encountered 45 feet of net oil pay in the Kareem reservoir, further extending the Hana field to the west. The well was completed as a Kareem producer and put on production in mid-February at an initial rate of 800 bpd.
The second well, Hana South-1, was also successfully drilled, reaching a total depth of 5,500 feet. The well encountered a new separate reservoir in the Kareem formation known as the Shagar member. Log analysis indicated 17 feet of new pay in the Shagar member with 30 percent porosity and "virgin" reservoir pressure. The Rudeis target in this well was encountered just below the oil-water contact.
The well was completed as an oil producer in the new Kareem reservoir. On testing, using a down-hole jet pump, the well flowed 1,800 bopd, but a poor primary cement job resulted in water channeling behind the casing and the water rapidly overcame the oil flow. A service rig has been brought on site to perform a cement squeeze operation in order to try to rectify the problem and contain the underlying aquifer. The well will then be re-perforated and re-tested.
The third well, Farag-1, spudded in mid-March and is testing a new structure located 12 kilometres northeast of the Hana field. The well is targeting the Miocene Upper Rudeis as well as the deep Nubia reservoir, two of the most prolific reservoirs in the region. This will be Tanganyika’s first test of the Nubia reservoir. Targeted total depth of the well is approximately 10,500 feet. The well reached a depth of 7,645 feet when the bottom hole assembly got stuck. The drill crew was unable to fish out the assembly. A cement plug was installed and the well is now being sidetracked.
The sidetrack kicked off at about 4,800 feet and is currently at a depth of 6,500 feet.
The Gulf of Suez is a prolific rift basin containing over 6 billion barrels of oil reserves and currently produces in excess of 600,000 barrels of oil per day. Tanganyika holds a 70 percent interest in the West Gharib Concession, encompassing over 468,750 acres. Flanking the Gulf for some 120 kilometers, this onshore concession is offset by numerous world class reservoirs.
The Tanzania Mandawa Block is a large, onshore coastal block (2.53 million acres) in Tanzania covering a largely unexplored rift basin. The Company has drilled three wells on the project but has so far failed to discover commercial hydrocarbons. Data obtained from the previous drilling programs is under review in order to evaluate further exploration initiatives in the basin. This project is currently under Force Majeure as a result of certain fiscal issues pursuant to the Production Sharing Agreement with the government of Tanzania.
During the quarter under review, Tanganyika completed a private placement of 4,000,000 units at a price of CAD$0.50 per unit, raising gross proceeds of CAD$2,000,000. Each unit comprises one common share and one share purchase warrant. The warrants are exercisable over two years at a price of CAD$0.55 per share. Gross proceeds of the private placement will be used for general working capital purposes.
During the quarter under review, a major shareholder of Tanganyika has provided to the Company a credit facility in the amount of CAD$2,408,702. The loan is for a term of six months, bearing interest at the rate of one percent per month. At the option of Tanganyika, the loan may be paid out at any time without penalty.
The Company has agreed to issue to the shareholder a bonus equal to five percent of the principal payable in cash (CAD$120,435), or at the shareholder's option, the equivalent value in shares of the Company convertible at the then market value. Tanganyika has used the facility to pay out the principal, accrued interest and other charges of an existing loan, totaling CAD$2,358,701.86, with Quest Ventures Ltd. that was due on October 23, 2001. The balance will be used for general working capital purposes. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
