TAG Oil Ltd. (TAO:TSX.V; TAOIF:OTCQX) 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.
Important Catalyst on Horizon
Results from the BED4-T100 well, anticipated in April, is the company's next catalyst, Gill noted.
Favorable Financial Picture
Gill reported that TAG is currently in a strong financial position. The company is well cashed up to complete the first horizontal well, noted the analyst, having CA$24.9 million (CA$24.9M) of working capital, CA$23M of cash on hand, and no debt as of the end of Q3/23.
The infrastructure TAG will need to produce oil from the concession already is in place, including facilities on site that can process 25 Mbbl/d.
"This will allow TAG to focus capital on drilling without infrastructure taking up a meaningful portion of the budget," wrote Gill.
TAG has two gross over-riding royalties on previously owned assets. One is 2.5% of gross revenue produced from the New Zealand assets. The other is 3% on gross potential future gas production at the Australian asset.
As for its capital structure, Gill reported TAG has 185.1 million (185.1M) shares outstanding and 11.5M options exercisable at an average price of CA$0.53 a share.
Well-Suited Team
Gill provided bios for each member of TAG's leadership team, all of whom have extensive experience in the oil and gas industry.
For instance, Executive Chairman Abby Badwi most recently was the president and chief executive officer (CEO) and led the sale of Kuwait Energy, an exploration and production company with operations in Egypt, Iraq, and Oman.
TAG's CEO, Toby Pierce, brings to the table 25 years' worth of knowledge and understanding of oil and gas operations, capital markets, investment banking, and mergers and acquisitions.
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Important Disclosures:
- TAG Oil Ltd. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.
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Disclosures for Echelon Capital Markets, Tag Oil Ltd., February 26, 2024
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ECHELON WEALTH PARTNERS INC. IS NOT SUBJECT TO U.K. RULES WITH REGARD TO THE PREPARATION OF RESEARCH REPORTS AND THE INDEPENDENCE OF ANALYSTS. The contents hereof are intended solely for the use of, and may only be issued or passed onto persons described in part VI of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Copyright: This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of Echelon Wealth Partners.
ANALYST CERTIFICATION Company: TAG Oil Ltd. | TAO-TSXV I, Adam Gill, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
IMPORTANT DISCLOSURES
During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer? Yes
During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? Yes
