Upland Resources (LSE:UPL) saw its shares dip 1.5pc to 3.3p this morning despite announcing that its licence for hydrocarbon exploration and appraisal in onshore northern Tunisia accepted by the country’s government. The permission, which was granted by Tunisia’sHydrocarbon Consultative Committee, covers a 4,000km2 area containing the Saouf Permit and marks the first significant step forward in Upland’s North African activities.
The firm believes the area could contain significant amounts of recoverable gas given that an existing gas discovery was made on-site 50 years ago before the establishment of local gas markets. It will act as operator and hold a majority stake in the permit, although state oil business ETAP would have a right to acquire a minority stake in the event of a discovery.
Upland has created a work programme including a fully-funded initial 2D seismic survey and the drilling of one or more new wells. It hopes to take advantage of numerous existing gas pipelines that cross the permit area. These have spare capacity and provide access to attractive local gas markets.
Finally, the permit also gives Upland the right to build on its initial acreage position and expand into the surrounding area. Chief executive Steve Staley said: ‘As a team, we have several decades of experience and knowledge of exploring in Tunisia. We believe that Saouaf will form an important part of Upland’s portfolio and will be integral to our strategy of acquiring high impact, quality assets, as already illustrated by our farm-in to the Wick prospect.
‘With the demand for gas supporting prices, I see this as an exciting opportunity for Upland and look forward to providing more details to shareholders in due course. This opportunity would fit well with the timeframe for the Wick well, which is to spud in September 2018.’
Today’s announcement comes just days after Upland welcomed the signing of an Authorisation for Expenditure for a well at the UK’s Wick prospect which is thought to hold hundreds of millions of barrels of oil. It owns a 40pc working interest in Wick and will fund c.53pc of the costs related to the well capped at £4.2m. The business also owns a stakein the UK-based conventional oilfield Hardstoftand holds a memorandum of understanding with a state entity called Brooke in Sarawak, one of the four states that make up Malaysia.
When we spoke to Staley in May, as Upland’s shares sat at 3.3p, we said the firm’s lack of debt and low overheads have allowed it to benefit fully from the buyers’ market for oil and gas assets in the wake of the 2014 price crash- something Staley says continues to this day. This dynamic sets the scene nicely for Upland as it prepares to step up in Malaysia and North Africa.
With a good chance of Hardstoft and Wick delivering a steady future revenue stream and today’s news marking its first significant step into Africa, Upland’s prospects could be very bright if things work in its favour. Of course, there is a risk with exploration companies that projects will fail and the macro environment will sour. But Upland is at least mitigating this somewhat with it highly-diversified approach to risk and geography and its strong financial grounding. At 3.3p a share, it could soon leap in the face of the right newsflow.
Author: Daniel Flynn
Disclosure: The author of this piece does not own shares in the company covered in this article.