BOUHAJLA PROSPECT TO BE TESTED

The Bouhajla Permit in Tunisia lies immediately West of the Sidi el Kilani (SeK) field, which to date has produced approximately 50 million barrels of light oil from the Abiod formation, which is the primary exploration target of Africa Hydrocarbons’ (NFK.V) and DualEx Energy’s (DXE.V) program. DXE is the operator of the block with a 52.5% Working Interest, with NFK holding a 47.5% Working Interest.

In June 2010, Martin and Brusset Associates (‘M&B’) an independent qualified reserves evaluator and auditor, completed an initial evaluation of undiscovered resource potential of the 'Bouhajla North' prospect, the first prospect identified on the Bouhajla Exploration Permit, onshore central Tunisia. M&B estimated an unrisked 'Best Estimate' of 82,829,000 barrels of Petroleum Initially in Place with a ‘Low Estimate’ of 49,441,000 barrels of Petroleum Initially in Place and a ‘High Estimate’ of 129,090,000 barrels of Petroleum Initially in Place.

The Sidi El Kilani field occupies a pop-up structural inversion. Using seismic previously recorded over the Bouhajla North prospect, management noted similar structures. This encouraged further work on the prospect. In 2012, 3D on a 55km² area was shot and after processing and interpreting the data, the geological similarity between Bouhajla North and Sidi el Kilani was confirmed.

Recent drilling by DualEx and Africa Hydrocarbons (well was spud on June 8^th 2013 reached  target depth reached on July 15^th 2013) identified fractures and micro-fractures over a 245m section of Upper Abiod, similar to those which have produced superbly at Sidi el Kilani. Evaluation of the well and wire-line log data “provided sufficient evidence to consider testing the Abiod formation”. The companies noted that “several interpreted fracture intervals are observed within a 245 metre thick Abiod section. Elevated C1-C4 gas chromatograph readings along with evidence of micro-fractures observed in drill cuttings coincide with the potential fracture intervals.”

The 245 metres of highly fractured Abiod is more than the approximately 200 metres of Abiod encountered at the Sidi el Kilani field to the East. Seal was confirmed by the presence of the El Haria shale directly above the Abiod.

If that was not enough, in September the companies decided to source a pulse-neutron logging tool to determine pore saturations within the Abiod. The results provided more encouragement. The logging indicated that there were elevated hydrocarbon saturations throughout the Abiod section, with no indication of intersecting a water contact. Several zones of enhanced permeability due to the natural fractures and faulting were interpreted. It is these zones that the partnership is intent on completing and testing through perforation and acidisation after cleanup and treating of drilling fluids/solids waste pit at BHN-1. Testing is slated for early November.

At Sidi el Kilani, the Abiod reservoir consists of a fractured chalk, locally dolomitized in association with wrench tectonics. Reservoirs of this type tend to have high recovery factors accompanied by very high individual well productivity rates. The partnership is targeting up to 10,000 barrels of oil per day on the first well. This is not an outlandish figure considering that Sidi el Kilani’s maximum production over 20,000 barrels per day from 5 wells with one of the wells producing as high as 11,200 barrels per day. Management anticipates that fewer than five wells would be needed to optimize drainage of the target area, which is substantially larger than the area of production of 50 million barrels at Sidi el Kilani.

Monetisation of the asset is expected to be quick and at low cost. 25km from the well, there is a 126km long pipeline from the Sidi el Kilani field to the port at Skhira. The pipeline was sized to handle 22,000 barrels per day but is currently only handling 1,000 barrels per day as SeK draws towards the end of its life. Thus, there is ample capacity for discoveries made at Bouhajla, even should the ground be penetrated more times if they make a hit. A tie-in of the SeK pipeline with Bouhajla is expected to cost 20 Million Dollars, a very attractive proposition indeed. And with the facility only 25km from the well site, trucking of the oil to the facility is a viable option as work on the pipeline begins.  

It is difficult to put a valuation on the companies at this juncture, and indeed, trading at the moment is purely speculative. However, should the find at BHN-1 prove commercial after testing, a significant re-rating is to be expected. 40 to 50 million barrels of reserves being booked at BHN-1 as is expected, would be worth between $210-$262 Million to DXE ($1.68-$2.10) and between $190-$238 Million to NFK ($1.20-$1.50), both fully diluted.

The sizeable gains to be had would be further enhanced by the bringing into play of 2 other prospects on the Bouhajla Permit, Bouhajla Northeast and Bouhajla Southeast. Both of these prospects are considerable larger than Bouhajla North with Best Estimates of 591 and 391 Million barrels of Petroleum Initially in Place respectively. With a proven discovery at BHN-1, the block will be significantly de-risked. And with production dollars, the companies will not be short of exploration funds, minimizing the need for further dilution.

All this promises to be a tantalizing scenario.

ALL THE BEST.