TransAtlantic Petroleum: Focus On Production Growth

Drilling activity picks up speed in H213
TransAtlantic Petroleum, (TAT) is in the midst of a US$130m, 38 well drilling programme, which applies North American oil and gas technology to Turkish and Bulgarian oil and gas basins. TransAtlantic has successfully tested both horizontal drilling and fracking methods on Turkish assets in the first half of the year, and we expect the current drilling programme to push on, potentially increasing production from a current 4.5mboe/d to over 9.0mboe/d by 2015.

Unconventional programme to pick up speed in H213
TransAtlantic is pioneering North American drilling and fracking technology in Turkey, and applying unconventional methods to new shale plays, as well as to existing conventional assets. Moving forward with a US$130m drilling programme in 2013, TransAtlantic aims to drill 38 wells in this financial year. It has spudded 18 wells in the third quarter, and 27 wells year-to-date; our models point to a potential doubling in production volumes by 2015.

Making use of its Viking advantage
North American horizontal drilling technology, fracture stimulation and 3D seismic acquisition are all supplied by Viking, an oilfield service company spun-off from TransAtlantic in June 2012, and partly owned by the Mitchell Group, which holds a 40% equity stake in TransAtlantic. Access to Viking is central to the company’s ambitions in Turkey and Bulgaria, and grants TransAtlantic a sustainable cost and technological advantage in the region.

Focus on production growth
TransAtlantic has encountered difficulties in substantially increasing production over the past two years. In our view, delivering on the current drilling programme, and in turn pushing production sustainably above our forecast 5.5mboe/d year-end exit rate, could deliver new catalysts to the company’s market value.

Valuation: Production boost not being priced in
Our valuation models find a core NAV of US$1.26 per share, with our conservative assumptions allowing for completion of the current US$130m drilling programme in Q114. With TransAtlantic trading at a 35% discount to our valuation, we are of the opinion that markets have yet to fully price-in the potential production boost and upside from the successful application of North American horizontal drilling and fracking techniques to Turkey’s oil and gas basins.

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