Tangiers Petroleum has finalised its financial obligations in relation to the drilling of the TAO-1 well, being a total of US$18.56 million. This has been funded by the Company’s cash position and leaves Tangiers with a cash balance of approximately $1.25m.
The final cost of the TAO-1 well was in excess of the Company’s internal budget. This was largely due to factors not associated directly with the drilling, which was completed safely and efficiently. Unfortunately, several of the costs were not fully quantified until after the well had reached total depth, at which time it was not possible for Tangiers to issue additional equity.
After an internal strategic review, and as part of the finalisation of its obligations, Tangiers has undertaken to exit the Tarfaya Offshore Block either by assigning its 25% interest to Galp Energia (Galp), Tangiers’ partner and the Operator of the block, for consideration of US$3.4m; or by withdrawal when the permit expires in February 2015.
Under an agreement with Galp, if the exit has not been completed within 6 months (or 12 months at the discretion of Galp), Tangiers’ Moroccan subsidiary, DVM International SARL (DVM), will be liable to Galp for a payment of US$3.4m. Given that the permit expires in February 2015, and that the intention of both Galp and DVM is for DVM to assign the permit, the Board is confident that the contingent liability in DVM has a low chance of realisation.
Tangiers has also agreed a payment to Galp of US$3.4m, in stock or cash, if the market capitalisation of Tangiers exceeds US$50m within seven years of the agreement. This payment will also be required if Tangiers delists for any reason, such as due to a change of control.
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