Why Two Experts Named This Oil Co. A Top Pick for 2023

TAG Oil Ltd. (TAO:TSX.V; TAOIF:OTCQX), a Canada-based oil and gas exploration company, recently released a report on Phase 1 of its re-completion and evaluation project for its BED 1-7 vertical well.

TAG Oil is primarily focused on oil and gas exploration in the Middle East and North Africa. Their primary operation is the BED 1-7 well in Abu Roash sandstone formation. The development of this oil field is relatively new, as it was only discovered in 1982.

TAG’s CEO is Toby Pierce, its Chairman is Abby Badwi, and its COO is Suneel Gupta. Abby Badwi in particular has been noted by Malcolm Shaw to have been at the helm when TAG made the decision to develop resources in the Western Desert of Egypt.

Re-Completion of BED 1-7

Recently, TAG announced the re-completion and evaluation operations for BED 1-7 vertical well have gone as expected.

According to TAG, they “continue to prepare the well for the hydraulic fracture stimulation that is expected to occur around the end of February. The company anticipates providing well flow results from these operations in March 2023."

Why Oil?

There are a several reasons to consider oil at the moment.

In December, Chen Lin of What is Chen Selling? What is Chen Buying? said, "to have a happy new year invest in companies specializing in rare metals, biotech, and/or energy stocks."

Will Horner of the Wall Street Journal mentioned OPEC has raised its forecast for demand in crude oil after a rebound in economic growth following the pandemic. OPEC also cited a higher-than-expected resiliency to inflation, keeping expectations for oil high. One factor to watch would be the policy decisions surrounding the reopening of China: a walk-back on lifting lockdowns could negatively impact the economy for oil and natural gas.

Additionally, Russian oil appears to be in decline: OPEC “expects Russian output to fall by 900,000 barrels a day from 2022 levels."

According to CNN, Russia has announced that it will reduce crude oil production by half a million barrels per day in Spring. According to their Deputy Prime Minister, Alexander Novak, this is in response to sanctions placed on Russia’s seaborne exports. As a result of this reduction in supply, U.S. oil is trading at prices of US$79 per barrel of crude oil.

“This seems to be a relatively low-risk fracking play," Chen Lin said. “The market value could increase at least tenfold."

The European Union has not indicated that it intends to let up on the sanctions, as it announced in the summer of 2022 that it intends to phase out port imports of Russian oil.

The recent earthquake in Turkey and Syria has also had an effect on the international oil supply. According to Reuters, “the earthquake that struck Turkey and Syria on Monday stopped crude oil flows from Iraq and Azerbaijan out of the Turkish port of Ceyhan. BP Azerbaijan has declared force majeure on Azeri crude shipments from the port. Iraq’s pipeline the Ceyhan resumed flows on Tuesday."

However, Bob Yawger, the director of Energy Futures at Mizuho, commented that an uptick in production was “bearish for the market." While oil did not rise as much as Reuters had originally suggested (2.5 million barrels), it did rise by 2.4 million barrels at the end of the week of February third.

TAG reports that “following our resource report with a valuation of US$340 mm that we released in November 2022 we are trading at approximately 30% of that valuation. There are several significant upcoming catalysts that could cause the stock to substantially re-rate in the next six months and re-rate toward the US$340mm."

Multiple Catalysts on the Horizon

The short-term catalysts for TAG are primarily focused on the operational status of its wells. TAG expects its first well re-completion results in early March of 2023, and its first horizontal well in May or June of 2023.

“This seems to be a relatively low-risk fracking play," Chen Lin said. “The market value could increase at least tenfold."

There is also potential for a second horizontal well in December of 2023 or January 2024.

Malcolm Shaw of Hydra Capital listed TAG Oil as one of his top three picks for 2023. Shaw cites the leadership as a deciding factor in his decision.

TAG’s wells in the Western Desert occupy an area that data suggests contains large reservoirs of oil. TAG has used technology such as hydraulic fracture and horizontal wells in Canadian oil fields, and intends to use these same techniques to develop the oil and natural gas found in the Western Desert.

Malcolm Shaw of Hydra Capital listed TAG Oil as one of his top three picks for 2023. Shaw cites the leadership as a deciding factor in his decision: “one key person that got Shaw’s attention was Abby Badwi. Badwi has an extensive history within the oil and gas industry, most notably according to Shaw, his work as the CEO and director of Rally Energy Corp." Under Badwi’s leadership, TAG targeted overlooked oil resources in Egypt.

TAG reports that it has a history of building up companies for sale, such as Bankers Petroleum, Rally Energy, and Kuwait Energy. Its strategy at the moment is to develop proven oil resources through technology rather than exploration.

In December, Chen Lin listed TAG as one of his top picks for 2023 as well.

Ownership and Share Structure

According to the company, management and insiders, including the chairman, board members, CEO, and CFO own 13.1% of the company.

According to Reuters, Abby Badwi has 2.06%, with 3.19 million shares. Director Shawn Reynolds has 1.54%, with 2.38 million. Vice President and COO Suneel Gupta has 1.03%, with 1.59 million. CFO Barry MacNeil has 0.96%, with 1.48 million shares. CEO and Director Toby Pierce has 0.82%, with 1.26 million shares. Director Gavin Wilson has 0.74%, with 1.15 million, and Director Keith Hill has 0.16%, with 0.25 million. Hill is also the chairman of Black Pearl Resources Inc. (PXX:TSX) and ShaMaran Petroleum (SNM:TSX), and the CEO of Africa Oil Corp. (AOI:TSX).

Askar Alshinbayev, the Founding Partner of Meridian Capital Limited, personally has 10.98% of the stock, with 16.99 million shares. 

22.8% is held by institutions and strategic investors. Meridian Capital/YF Finance owns 19.9%, and Coronation Capital owns 3%. Meridian Capital is also a strategic investor and acquired its share in the company through placements and open market buying.

The rest is in retail.

TAG Oil reports CA$34 million in the bank, with a monthly burn rate of CA$400k per month.

TAG Oil has a market cap of CA$100 million and it trades in the 52-week range between CA$0.20 and CA$0.79.

Disclosures:
1) Amanda Duvall wrote this article for Streetwise Reports LLC. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.

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