Appointments and raise should take to next level
After the approval of the field development plan in April 2015, Madagascar Oil (LONDON:MOIL)) can start the development stages of the massive 1.7bn OIP Tsimiroro field. Further approvals (such as the recent EIA submission) and milestones need to be negotiated, but pilot results indicating commerciality of the resource mean that a staged development can start. A development of this size is too big for MOIL to fund independently, and it has appointed Jefferies to seek possible partners. Given the size of the resource, we would expect interest from many parties. Importantly, MOIL can now leverage the knowledge of two very experienced figures in the company, Robert Estill (CEO) and Michael Duginski (NED) following their appointments. We have made broad assumptions on a possible farm-down (of 40%) with partial carry to arrive at an indicative NAV of 38p/share, although we note the material uncertainty in the terms of a deal.
New management has heavy oil experience
We are encouraged by the appointment of two very experienced heavy oil executives. CEO Robert Estill worked for four years on the Duri project in Indonesia and was most recently senior vice president of strategic planning at Marathon. Michael Duginski (NED) was formerly COO at Berry Petroleum, which operated heavy oil assets in California. They are therefore well placed to help MOIL develop Tsimiroro from the pilot to a large commercial project.
Funding required to unlock resources
Existing key shareholders have indicated conditional support for a $50m equity raise, which should fund the initial steps towards full development (we assume $30m in 2015). The size of the project (currently 1.7bnbbls contingent, though with upside), low geological risk, proximity to Asia and potential to drive the Malagasy economy means it should be attractive to industrial and financial players.
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