Cygam Energy
(TSX.V :CYG)
Dario Sodero, Ph.D., CEO
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Cygam Energy Inc. (Cygam) is engaged in the exploration, development and production of oil and natural gas. The Company has production operations in Canada and exploration activities in Italy and Tunisia. In April 2008, Cygam participated in the drilling of the TT2 exploratory well on the Sud Remada block. The well was drilled to a total depth of 1500 meters and encountered hydrocarbons in the Ordovician Bir Ben Tartar formation In June 2008, the Corporation completed a 60 km 2 dimensional (2D) seismic acquisition program on the Bazma block. Cygam conducted an additional 200 km seismic program in the north-western portion of the Jorf permit.
TRANSCRIPT
WSR: Good day from Wall Street. This is Juan Costello, Senior Analyst with the Wall Street Reporter. Joining us today is Dario Sodero, CEO and President of Cygam Energy. The company trades on the TSX Venture, and the ticker symbol is CYG. And Cygam Energy is focused on acquiring, exploring, and developing international oil and gas permits. Thanks for joining us today there Dario.
Dario Sodero: Thank you very much for asking us Juan, and I hope I can answer all your questions.
WSR: Now start up by talking about the recent news here, your subsidiary Rigo Oil just signed an option, formal agreement with a US independent oil and natural gas company for your Bazma Permit in Tunisia.
Dario Sodero: Cygam is the mother company of two subsidiary, one called Rigo Oil Company, which operates in Tunisia and another one called Vega Oil, which operates in Italy. This recent announcement — we are really delighted about having this large US company joining us in exploring and hopefully develop some deep potential in the Bazma permit, which is one of the four permits that we are involved in Tunisia. We are the operator of the Bazma permit and this permit has both deep and shallow potential. And as I mentioned earlier, we are delighted that this large company will join us in exploring for the deep potential, which would be either oil or gas or both. We also have shallow potential on this permit and we plan to drill a well to test the shallow potential in 2010. The well will be drilled close to the existing producing field outside our permit and the well will be also very close to existing pipeline with capacity. So, overall, I think there will be a fair amount of activity as we mentioned in the press release on this permit starting with seismic and potential drilling of a deep well. Do you have any other question on this one?
WSR: No, just bring us up to speed on some of your other projects.
Dario Sodero: Okay, first of all, I would like to say that Tunisia is a very stable country, probably one of the best country to do business in North Africa. Tunisia has a royalty structure, which is definitely in our opinion, more favorable than adjoining countries such as Libya or Algeria, and we have an excellent relationship with the government. We are involved in three other permits, one called Sud Remada. It’s the only permit that we do not operate. We had a discovery on Sud Remada in 2008. The first well went on production in March 2009 and this well is flowing oil and gas in a natural state. That means that we did not do any fracs on the well and the production is very constant. The well was drilled on a very large structure where we are currently shooting a large 3D seismic program. And after the 3D seismic program has been interpreted, we will very likely drill two delineation wells in 2010 and we’ll present the Tunisian state company with a full development plan by late 2010. I suspect that there would be substantial development drilling on this structure, which is about 65 square kilometers, and this development drilling will probably start in 2011 and continue for a few years because we could definitely drill lots of wells on this structure. On that same permit, there are other well structures which are undrilled, and I believe they also have the same potential. One other permit that we have is called Jorf and we have deep potential on this permit and also shallower potential similar to the well that we are going to drill on the first permit we mentioned, which is the Bazma permit. We expect to drill in Jorf probably in 2011, and again, this permit is very close to existing infrastructure. The last permit is called Sud Tozeur. It is close to the Algerian border. It is a very, very large permit; over 1 million acres. And just to give you an idea of the state of exploration in Tunisia compared with Canada or the United States, this particular permit with over 1 million acres has one well that was drilled on the permit. So there are several undrilled structures. We are close to two producing fields just outside the permit and again close to pipelines. So a lot of hope for this permit and we need to do additional seismic and possibly do the first drilling in 2011 or late 2010. So, to recap Tunisia, we operate three permits, we have interest in four permits. Altogether, we have over 3 million gross acres and over 1.5 million net acres. In some permits, there is extremely low well density. There is potential for several individual accumulation of I would say over 250 million barrels per structure, and the discoveries can be placed on production in a very relatively short period. And as compared with, for instance, Algeria, where they have a huge problem with extremely large sand dunes that can reach a height of over 200 meters. In Tunisia, the desert is of a rocky nature with very little blowing sand; so it’s much easier to drill well and install infrastructure. So, we are really keen on Tunisia. We have an excellent relationship with the government and we expect also production to come from that particular country.
WSR: Talk to us a little bit about some of the trends right now in the oil and natural gas sector and how well positioned Cygam Energy is to capitalize on them?
Dario Sodero: The trends in oil and gas — it depends on where you operate. If you are a Canadian company that operates in Canada, there are definitely lots of opportunities but the size of discoveries that you can make is somewhat limited. Also, the average daily production of a well is probably 20, 25 barrels on average. When you go to countries like Italy or Tunisia, where the exploration has not been as intense as in Canada or the US, first of all there is the potential for a very large accumulation, up to maybe a billion barrels, and generally speaking there is less competition. So, we try to focus on these two country, Tunisia and Italy. They are geographically very close. We have an office in Tunis and we have an office in Rome and we conduct the operations from these two offices. For instance, if we want to talk about Italy, most people don’t realize that Italy is actually the third largest producer in Europe, behind Norway and the UK. Production is not at the same level as Norway and the UK but is still quite respectable at about approximately 250,000 barrels of oil equivalent a day. Some of the production is coming from onshore and the other is coming from the offshore regions of Italy, namely the Adriatic Sea and areas around Sicily. It’s also interesting to note that the largest onshore discovery in Continental Europe was actually made in Southern Italy about 20 years ago. I feel that has about six billion barrels of oil in place. Again, density of drilling in Italy is definitely not as dense as US and Canada. There is little room to explore. There are several structures that are untested. And on top of that, the royalty structure in Italy is probably one of the most favorable in the world. I’d give you an example. For offshore oil, the royalty is 4% and on top of that, the first 300,000 barrels per year per field are royalty free. So, the government is obviously trying to promote exploration, and we are happy to be there. We have six permits in Italy that we operate and three of them have very large potential. We made another press release about three or four weeks ago where an independent appraisal of one of our permits, which is offshore in the shallow Adriatic Sea assigned potential petroleum in place in excess of half a billion barrels. And the recoverable potential would be in excess of 100 million barrels and about 30 bcf of gas. It would be very difficult to find a similar field in North America, especially in Canada. And when you are asking me about the trends, that’s what we feel that is important to remember, that in this two countries, Italy and Tunisia, there is still the potential of finding very large reserves, and that’s why we are there.
WSR: What are some of the other things that makes the company unique from some of the other players in your sector? Do you think it’s your acquisition strategy or?
Dario Sodero: I think what kind of makes Cygam unique is that despite the fact that we are a junior company, we have a very large inventory of prospects. As was mentioned, we have four permits in Tunisia and six in Italy. I don’t think you will find too many companies that have this large number of permits. Our strategy is to acquire the exploration permit on a 100% basis after we do all the geological and geophysical assessment of any particular area. And then, to bring in partners, usually on a promoted basis and the average promotion is about — a new partner will come in and say pay 60% of all the exploration up to the first well, including the first well, to earn a 40% interest. So, applying these methods, we can have basically the first well drilled at no cost to us and in the case of a discovery, we will still have a very large working interest, say 30% to 40% that can be substantial in any future development.
WSR: Will you look for more — you said you would look for more M&A here over the next year.
Dario Sodero: Yes, we will definitely look at additional permits both in Italy and Tunisia. We are not adverse to look at other areas in the Mediterranean area. I need to tell you that Cygam has a little bit of Canadian production, which was acquired years ago, but we do not explore in Canada. We have producing wells and all these properties are operated by other companies, usually major. So, if they propose a well, we usually participate, but we do not actively explore in Canada by our choice. We prefer to explore internationally and we have focused our exploration efforts in the Mediterranean area, namely Italy and Tunisia.
WSR: Perhaps you could walk us through your background and experience Dario, as well as that of the key management over at Cygam.
Dario Sodero: I am a geologist by trade. I got my degree in Italy as you can probably guess by the name. I was born in Torino where they had the Winter Olympics four years ago. I got my degree there. Then I moved to Canada, and I’ve done exploration in Canada, the Canadian Arctic, Greenland — international areas. Prior to Cygam, I was involved with a predecessor company which I had co-founded, and that company was called Sheer, and with that company we had signed a deal to redevelop the giant Masjed-I-Suleyman field in Iran. It was a fantastic opportunity. At the end, without going into many details, we decided to sell our share of the project to the Chinese national petroleum company, and I think the shareholders of Sheer were very happy because they received a dividend and a return on capital and they still kept all the shares. So that’s in a nutshell my background. Our CFO, Ali Rawji, has lots of experience dealing with the Toronto Stock Exchange. He has experience in financing. He is an excellent person. In Italy, we have Giuseppe Rigo as the manager of the office. Giuseppe is also representing the Rigo family, which is the major shareholder of Cygam, and he is conducting all the operations there. In Tunis, we have another gentleman named Rudolpho with lots of international experience running the office there. Talking about Cygam, I have to tell you that we have about 85 million shares outstanding, but management and the major shareholder control approximately 70% of the shares.
WSR: That’s a very key point.
Dario Sodero: Yes, we believe so. We are currently looking at the possibility of doing a financing, and I believe that the next couple of years will be critical for the company. We are on the verge of establishing lots of production in Tunisia, both on the structure where we have the discovery well and hopefully also on other structures. And in Italy, we have applied for the drilling license of one well in the Adriatic Sea and we have a very large permit offshore Sicily that could have the potential of containing over one billion barrels of oil, and we are going to shoot 3D seismic on this structure very likely next year.
WSR: In terms of investors, Dario, right now, do you think that they understand the general direction and message of Cygam?
Dario Sodero: I think the people that have been with the company for a while realize that there is lots of potential here. Of course as any other junior company, our share price dropped quite a bit one year ago when the global market collapsed, but I think people now are realizing that there is value and there is definitely lots of upside potential. Our shares are currently trading at $0.60. If I had to give you the expected risk value of our risk value of the shares, it would definitely be much more than $0.60.
WSR: So you believe you are undervalued. What are some of the things that — do you think that investors — have they understood better about the company — your higher valuation?
Dario Sodero: Obviously, we would like to promote the shares.
WSR: Do you think if they just understood more of your strategy or they understood more of your direction?
Dario Sodero: Basically, if you go on our web page, you can see all the properties that we have. They are management estimates, which tend to be very conservative on some of these reserves, and it’s just a matter of us drilling or having some of the structural drills to unlock the potential. So I think we would be very active in 2010, either directly or indirectly through people that participate with us in the drilling, and that should really tell the story on Cygam.
WSR: Great, and once again, joining us today is Dario Sodero, CEO and President of Cygam Energy, which trades on the TSX Venture Exchange, ticker symbol is CYG, and is currently trading at $0.60 a share. Now, before we conclude, Dario, just to kind of rehash everything, what do you think are some of the key reasons why investors should consider the company as a good long-term investment opportunity?
Dario Sodero: The key reason is really the large number of prospects that we have, and our strategy was to have — if you have one or two prospects and you drill a couple of dry holes, then you are basically finished. We have ten permits between Italy and Tunisia. We have plan to acquire more permits, and just statistically, you have a much better chance of success if you have a large number of permits, and that is really what makes the difference between Cygam and other companies, being they are Canadian or companies working out of London who have one or two permits and sometimes you can have excellent permits, but statistically, if you have more permits, you have a much better chance of success.
WSR: Definitely. We certainly do look forward to continue to track the company’s growth and I’d like to thank you for taking the time to update our investors today and we look forward to, also, reporting on some of your future projects.
Dario Sodero: There would definitely be other press release coming in the next few months.
WSR: Great, we look forward to it.
Dario Sodero: Thank you.
