Summary
Akcakoca discovery was considered the biggest event in 2004. Project development in offshore Akcakoca waters amounted significant costs. Production amounts came in significantly lower than expected flow rates and lower proven reserves. More development costs are in operator’s work plans. Toreador’s plan for providing the future development costs by the project cash flow is becoming less possible.
Analysis
Late 2004 summer discovery notice of operator Toreador (TRGL, 36.75 % working interest) and project partners Stratic Energy (SE.V, 12.25 % working interest) and Turkish Petroleum (TPAO, 51 % working interest) received great appreciation in the press and public markets. TRGL shares soared to $ 37.5 in less than two years from $ 4.5, mainly from the expected 350 Bcf to 1 Tcf gas reserves from the South Akcakoca Sub-Basin (SASB) project.
Development period was with delays and expensive. According to SE.V disclosures it was in the range of $ 550 Million. Several factors played roles in this cost overrun, such as loosing of three tripod platforms, requirement of more expensive marine equipment, etc
Delayed first gas production was in May of 2007 and the following production history was not as expected. Facilities were under utilized with choked production rates. While the expectation was for 50 MMscfd, more practical rates were in the range of 10 to 15 MMscfd
Reserve booking was also not as expected. For example SE.V’ annual reserve report showed only 8.03 Bcf of proved and 12.35 Bcf of proved plus probable gas reserves. Their financial reports also revealed a project cost of about $ 550 Million by the last quarter of 2008
Operatorship later passed from TRGL to TPAO and further development plans continued with 2009 fixed platform project at costs + $ 100 Million. Engineering work is awarded to Amec Paragon group in Houston and to include production facility upgrade from 50 MMscfd to 75 MMscfd and a four legged fixed platform in 312 ft of water.
Toreador’s plans included project finance through the project cash flow from the already developed phase-one section, including the three tripods
However the expectations are coming short with production problems and choked production rates.
Toreador first announced on August 8, 2008 that 26.75 % of their interest will be sold to Petrol Ofisi of Turkey at a price of $ 80.25 Million plus value added tax. This price tag appraised the project value at around $ 300 Million.
Petrol Ofisi is the largest fuel distribution company in Turkey. Company stock trades in Istanbul Stock Exchange with 13.27 % free float. The other owners are Dogan Group (52.73 %) and Austrian OMV (34 %).
According to the agreement revealed the sale closing was going to take place before the end of 2008. The last day announcement by the TRGL management casts shadow on the successful completion of this asset sale.
