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Taipan Resources Inc
Symbol TPN
Shares Issued 74,789,667
Close 2012-11-09 C$ 0.33
Market Cap C$ 24,680,590
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Taipan to start acquiring seismic for block 2B in Kenya

2012-11-12 07:26 ET - Shareholders Letter

Mr. Max Birley reports

TAIPAN RESOURCES INC. SHAREHOLDER'S LETTER AND OPERATIONAL UPDATE FROM CEO MAXWELL BIRLEY

Taipan Resources Inc. is providing a shareholders letter and operational update from chief executive officer Max Birley.

Dear shareholder:

Since closing Taipan's first major round of financing ($11.5-million) and the amalgamation with Lion Petroleum in July, we have worked steadily to move the company and its assets in Kenya forward. As the fourth-largest gross acreage holder in Kenya, we have been quite busy. Below, I enclose a brief summary of what has been happening in the Kenyan oil industry and an update of our operational activities in the country.

In order to facilitate the exploration and development of our two blocks in Kenya, I have moved my home and family to Nairobi. Relative to other frontier markets in which I have lived, worked and discovered hydrocarbons, Kenya is an easy and friendly place to conduct business. It is also a very exciting time in the Kenyan oil business, with very high levels of both commercial and drilling activity post the first major oil discovery in Kenya in March. Kenya is now widely regarded in the industry as the hottest place for onshore oil exploration.

Taipan Resources has also engaged two key senior Kenyan nationals to provide the essential local experience and input to operational decisions. This includes Daniel Ngenoh, a geophysicist who was previously the head of the Kenyan National Oil Co., and Hari Ndugu, who is now overseeing community relations for the coming seismic survey on block 2B. Both individuals are highly experienced in Kenya and have previous experience with our blocks. Mr. Ngenoh has undertaken a significant amount of technical work on block 1 and block 2B, while Mr. Ndugu worked for many years with the Ministry of Environment and has undertaken many site visits to the block 2B area.

As you are likely aware, in March Tullow Oil and Africa Oil announced that they had discovered oil in the Tertiary sandstones in the Ngamia-1 well. This well has created tremendous interest in Kenya since the announcement. As a follow-on, Tullow is currently drilling a similar Tertiary exploration target to the north of the Ngamia well named Twiga South-1. Although the well is not expected to reach its total depth until later this month, Tullow distributed a news release on Oct. 31, 2012, declaring that oil has been encountered in the well. Clearly this will continue to generate much interest and excitement as Tullow and its partner Africa Oil share further results later this month on this promising new discovery.

The Tertiary oil discoveries that have been made by Tullow and Africa Oil are highly relevant to the exploration efforts of Taipan, as we have more than 3,150 metres of the same age and type of rocks occurring on block 2B, where we hold a 100-per-cent interest.

Tullow also recently commenced the drilling of the Pai Pai exploration well. The well will be drilled to reach total depth at around 4,112 metres and is expected to test Cretaceous and Jurassic objectives.

While our primary objective on block 2B is oil in the Tertiary, the Pai Pai well is on trend with additional Cretaceous and Jurassic plays that also exist on Taipan's block 2B. The results of the Pai Pai well are expected toward the end of the year.

Contiguous to Taipan's block 2B, on block 9, Africa Oil and Marathon Oil plan to drill the Kinyonga prospect, with Tertiary and Cretaceous targets, in the second half of 2013. This is a large prospect with a gross-oil-prospective-resources (unrisked) best estimate of 320 million barrels. Based on gravity, magnetic and seismic data, we can see that the Tertiary trend on block 9 extends into block 2B and we believe that the sweet spot of the basin is located on our block.

Taipan Resources operational update

Block 2B is currently 100 per cent owned by Taipan's wholly owned subsidiary Lion Petroleum. Block 2B is 7,800 square kilometres, which is equivalent to 1.9 million acres. We are currently in the initial exploration period of the production-sharing contract (PSC), which ends on June 1, 2013. We have the option to extend the exploration term of the PSC for a further two periods of two years (total of four years). The work program and expenditure up until June 1, 2013, includes the acquisition of 400 kilometres of seismic data and the acquisition of a block-wide full-tensor-gradiometry survey (FTG).

We expect to begin the acquisition of 400 kilometres of seismic data for block 2B in December of this year and early in 2013 we will also acquire the FTG survey. The total expenditure for the work program up to June 1, 2013, will be $6.5-million. Concurrent with the interpretation of the seismic and FTG data, we expect to begin our well planning and design work and expect to drill an exploration well on block 2B in the second half of 2013.

We have also now completed an in-depth technical review of block 2B, which has exceeded our original expectations. Management believes that the resource estimates previously prepared by independent petroleum consultant Sproule for block 2B are conservative. We expect to provide an update to our resource estimates in the first half of next year after the seismic and gravity work have been integrated. It should also be noted that the current resource estimates for block 2B were prepared prior to the oil discoveries that have occurred this year in Kenya.

During the month of October, we arranged a 20-day site visit to block 2B to meet senior government officials and tribal elders to begin the process of presurvey community awareness. Two public meetings were held to explain the work that will be undertaken and to take on board the concerns of the local community. Further sensitization meetings will take place before the seismic survey commences.

Taipan Resources commercial update

In September we commenced a farm-out process for Taipan's wholly owned block 2B. The aim is to bring in a partner that will be expected to add technical input to the work on the block in addition to carrying our costs through the exploration work program. We are currently engaged in various levels of discussion with a number of potential farm-in partners. We plan to farm out up to 50 per cent of our interest in the block and expect the farm-out process to be concluded by the end of this year.

We have also been encouraged by the high level of recent commercial activity in both Kenya and the surrounding region and in particular by the farm-in on block 9, which is contiguous to Taipan's block 2B. Commercial activity has included the Marathon farm-in into Africa Oil's interests in blocks 9 (50 per cent) and 12A (15 per cent) for $57-million that closed in October and the purchase from Agriterra, also by Marathon, of its 20-per-cent interest in the South Omo block in Ethiopia for a total of $50-million, also in October. In addition, in September Bowleven farmed into Adamantines's block 11B to acquire a 50-per-cent interest for financing the next $10-million of seismic work. All of this activity demonstrates the sizable interest in the Kenyan hydrocarbon arena.

Investor communication is very important to the Taipan board and management team. In order to educate investors of the attractiveness of Taipan's acreage position and to clarify the coming work program and expected farm-out, throughout October we held more than 50 investor and analyst meetings across the United Kingdom, Ireland, Canada and the United States.

We will continue to keep you updated on our progress and also suggest you visit Taipan's recently refurbished website for news on developments with the company and throughout East Africa.

Finally, we wish to thank you for the confidence you have entrusted in the Taipan board and management team and assure you of our commitment to building sustainable shareholder value.

Warm regards,

Maxwell Birley, chief executive officer

We seek Safe Harbor.

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