OREANDA-NEWS.   Tangiers Petroleum Ltd Friendly scrip takeover bid for Jacka Resources (JKA)

Event:
- Recommended takeover offer by TPT for JKA.

Details:
- TPT to acquire JKA via an off-market takeover bid.
• Scrip consideration with 0.468 TPT shares for every 1 JKA share.
• Values JKA at USD 0.112 based on TPT last closing price of USD 0.24 and equity valuation of USD 37m.
• 56% premium to JKA’s last closing price (USD 0.072) and 53% premium based on the JKA and TPT 1 month VWAPs.
• JKA Board have unanimously recommended the offer in the absence of a superior proposal.
• Upon completion, register will be split 53% TPT and 47% JKA (undiluted) and market cap will be USD 80m.
• TPT also providing JKA with a USD 2.5m standby loan facility.
• Offer is has minimal conditions, namely a 90% minimum acceptance.
• Offer expected to open in February 2014.

Analysis:
• Sensible deal for both corporates: In our view, the proposed bid is mutually beneficial for both companies. It grows and diversifies TPT’s portfolio (which has limited near term funding requirements) in line with management’s strategy to develop an African focused E&P company. While for JKA investors the deal provides a healthy 53% premium to the last traded price, access to much needed capital (pro-forma cash ~USD 20m) and continued exposure to benefit from the upside through the exploration and development of the asset portfolio.

• Increased scale/appeal: The combined TPT/JKA will emerge as, in our view, the premier small to mid-cap Africa focused O&G company with a market cap fast approaching USD 100m and with pro-forma cash position of ~USD 20m (post receipt of farm-in re-imbursement relating to Tarfaya). The Board will be first class with a wealth of E&P experience, particularly in Africa. Eve Howell to remain as Chairman of Tangiers, with Bob Cassie (current Jacka Managing Director) to become Managing Director upon completion.

• Combining the two entities delivers an exciting and strong portfolio of assets ranging from development, appraisal to prospective exploration. The asset portfolio would consist of the following:

1- TARFAYA BLOCK, MOROCCO (25%). TPT is carried for the first well planned to be drilled Q2 2014 following completion of a farm-out to Galp Energia (50% and operator). The farm-out includes USD 10.5m of cost re-imbursements to be repaid upon final Ministerial approval.

2- BARGOU BLOCK, TUNISIA (15%). The Hammamet West oil field contains a pre-drill estimate of 16.7 MMbbl net 2C Contingent Resources. The offshore Hammamet West-3 well (HW-3) recently flowed liquids from open fractures at 1,290 bpd prior to blockages. JV to re-enter HW3 and test in H1 2014 with second side-track (HW3-ST2).

3- AJE FIELD, NIGERIA (5% NET REVENUE INTEREST). Phase 1 field development plan due early 2014. Field proven and derisked with four wells drilled to date having encountered hydrocarbons. Contains an estimated 10.5 MMboe net 2C Contingent Resources.

4- ODEWAYNE BLOCK, SOMALILAND (15%). The block has numerous oil seeps indicating an active hydrocarbon system. Regional studies suggest the area contains sedimentary basin analogous to the multi-billion barrel producing basins in Yemen. The combined entity will have a 15% interest (and option to acquire further 5% interest) with a free carry on a minimum work program (operated by Genel) over the next two exploration terms estimated to cost USD 50m.

5- RUHUHU BLOCK, TANZANIA (100%). Underexplored East African rift basin in SW of Tanzania adjacent to Lake Nyasa. East African Rift system holds significant oil discoveries in Uganda and Kenya. Potential for material exploration upside. Near-term work program to include airborne geophysical and 2D seismic survey.

- Along with the board and management a key point of differentiation relative to its peers would be the strong balance sheet position pro-forma cash USD 20m. This consists of pro-forma cash of ~USD 8m with a further USD 10.5m expected to flow in from a previously executed farm-in agreement relating to Tangiers’ Tarfaya Project. This will provide sufficient funding to complete an active work plan and financial strength to grow via further potential M&A.

• Finally, there will be a plethora of news flow from the forward 12 month work program including: two high impact wells planned for 1H2014 (TAO-1 exploration well in Morocco and testing of Hammamet well in Tunisia), development of the Aje field in Nigeria (1HCY14) and early stage acreage in Somaliland (free carried) and Tanzania.

• We consider it highly likely the bid will be successful given the premium being offered (+50%), Board recommendation and unlikely rival bids.

Recommendation and Price Target:
• Restricted.
• Foster Stockbroking are acting as financial advisor to TPT in respect of the JKA takeover bid.