Cygam Energy Inc.
In the oil and gas industry, fortune favors diligent explorers and long-term investors such as Cygam Energy Inc. Cygam entered the Italian and Tunisian oil and gas markets in 2005. The company’s subsidiaries – Rigo Oil Co. Ltd. in Tunisia and Vega Oil S.p.A. in Italy – manage 10 exploration permits. In Italy, the company’s two offshore permits hold the greatest oil potential. In Tunisia, it is aggressively expanding one of its operations that has produced oil since 2009.
Both areas have been subject to political events that weigh heavily on their energy markets, the company notes. Tunisia’s early 2011 political unrest coupled with Italy’s offshore drilling moratorium following the British Petroleum disaster in the Gulf of Mexico were recent causes of concern.
However, recent developments have Cygam’s upside potential looking positive. President Fouad Mebazaa replaced Tunisia’s former president Zine El Abidine Ben Ali in January. Also, the European Union softened its stance on a proposed offshore drilling moratorium, and Cygam hopes Italy will soon follow suit.
“We continue to recommend purchase of [Cygam’s] stock, and with the resumption of activity in Tunisia and a high likelihood of the Italian plays becoming active, we are changing our recommendation to ‘buy’ from ‘speculative buy’ and increasing our target to $1 from 75 cents,” Union Securities LTD, an independent Canadian brokerage firm, stated in a March 2011 report.
In seeing potential for conventional and unconventional oil reservoirs, Cygam has invested heavily in Tunisia. “We have one of the largest land positions in Tunisia of any Canadian junior company – approximately 3 million acres gross,” President Dario Sodero says. “We currently hold three permits in Tunisia – two we operate and one is operated by another Canadian company called Chinook Energy.”
Sodero says Cygam’s 14 percent working interest in the Sud Remada block has major potential as a well at one of the permit’s Ordovician structures – TT1 – has produced without stimulation more than 110,000 barrels of oil since 2009.
“It has produced light oils and the well is flowing naturally without any artificial lift,” Sodero says. “We have drilled two additional step out wells on this very large structure, which is about 67 square kilometers.”
The step out wells – TT3 completed in December 2010 and TT4 completed January 2011 – and the TT2 discovery well will be fractured in April or May, and the company expects to have them online in May, which could result in a tenfold increase in production.
Cygam plans to drill five to six additional development wells on the TT structure and later this year will begin drilling for a separate, larger structure at Sud Remada, which is actually located about 15 kilometers east of TT.
As it develops its North Africa operations, Cygam awaits Italy’s lift of its offshore drilling moratorium. “After the blowout in the Gulf of Mexico, the Italian Minister of Environment put on a moratorium,” Sodero explains. “However, Italy is part of the EU, and the EU has now lifted the drilling bans on offshore drilling, and we hope that Italy will follow suit.”
Cygam owns 60 percent of the B.R.268.RG permit, which covers a 31,302-acre property in the central Adriatic Sea. In the Mediterranean Sea off of eastern Sicily, Cygam holds a 100 percent permit at its 70-square-kilometer Aretusa structure, which could hold significant hydrocarbon reserves.
Both plays are in hiatus due to the moratorium. Once Cygam’s Italian offshore investments are up and running, the company and its investors will benefit from minimal royalty fees.
Offshore oil production is royalty free up to 822 barrels per day, according to Cygam. After that, there is a 4 percent royalty rate. Likewise, Tunisia’s industry-friendly fees range from 2 to 15 percent in royalty fees.