August 02, 2012 at 14:42 PM EDT
Turkish Delight: Anatolia Energy Antes Up Further into Turkey's Dadas Shale

Majors including Shell are starting to see value near Anatolia’s Turkish shale play

(SOURCE: VantageWire.com - Bottom Line Report) -- When Anatolia Energy (TSX.V: AEE) began the month of June, they already had a significant interest in the underdeveloped, high-potential Silurian Dadas Shale, primarily located in southern Turkey. Exiting June, the company made a splash by committing further to the Dadas by securing three new licenses, adding a contiguous area of 366,990 gross acres (183,495 net) immediately adjacent to the company’s previous existing Antep block, within which Anatolia is slotted for a 50% interest (shared with multi-billion dollar private partner, Çalik Enerji).

By adding these new licenses, the partnership’s Antep acreage position increases substantially to a gross total of 845,418 acres (422,709 net to Anatolia). More important than the sheer size of the partnership’s newly expanded Antep block, is the fact they believe they have covered off the entire extent of the prospective shale acreage within the Antep Basin. From an aggregate standpoint, Anatolia now has access to an interest in 11 licenses in Turkey with exposure to 1.2 million gross acres (581,429 net) of Dadas Shale and/or conventional oil prospective acreage at their disposal.

Around the corner is the spudding of the company’s first well at Antep, due in August 2012. Drilling to an approximate depth of 2,600 metres, the well is expected to test both the Dadas Shale and the more conventional Bedinan Sand (found directly below. It is expected that hydraulic fracture stimulation will proceed after a core sample is sent to Calgary for further analysis.

The Dadas Shale

Located near the southern portion of Turkey, drifting across the border with Syria, the Dadas Shale is often referred to as the “super source rock” that has supplied much of the world’s most productive Middle Eastern oilfields. However, to date, the play is still quite underdeveloped. Like many other of the more recent development stories, Anatolia intends to employ modern techniques, such as horizontal drilling and hydraulic fracturing to unlock the hydrocarbons held in this source rock.

A recent independent NI 51-101 compliant resource evaluation report of this unconventional shale resource identified a massive P50 gross best estimate of 11.6 billion barrels of original oil in place and 412 million barrels of prospective recoverable oil (206 million net). The Dadas has exhibited signs of being a very rich shale oil reservoir so far, and Anatolia plans to put their focus where the shale intersects the oil window in a recoverable form.

Searching too deep for these hydrocarbons will land the seeker with dry gas, as the higher pressure causes a conversion. And though natural gas prices in this region of the world are higher than they are in North America, Anatolia has made it clear that they are targeting liquid assets, to capitalize on the built-in bonus of selling oil at Brent prices.

By receiving Brent prices, the economics of the play surge ahead of North American shales such as the Barnett or Eagle Ford. Compared to the West Texas Index (or ‘WTI’), the Brent price can draw the producer as much as an additional $20 per barrel upgrade. Add onto that the Turkish royalty structure that only requires 12.5% of the government’s take, compared to the North American standard that’s closer to 20% in the US, and automatically the Anatolia team is afforded the ability to pursue wells with lower recovery rates than the minimum economic requirements seen over here.

That said, the wells themselves could turn out to be less expensive than most unconventional situations incur. The state-owned Turkish petroleum company, known as TPAO has shared the progress of its CIKSOR well that was drilled at the end of last year, which went through the Dadas shale. The well flowed both oil and gas without the need for further stimulation, thus bringing about further outside interest.

To the north of Anatolia’s Bismil property, Royal Dutch Shell has entered the mix, farming in on TPAO and spending over $200 million in Turkey. Though some of this money was spent on offshore assets, at least $50 million will be spent inland on the Dadas. Their plan is to drill five initial wells before returning to drill horizontally after they have their results.

The entry of a major adds some legitimacy to Anatolia’s targets. Depth wise, though, Anatolia believes it’s in a more favourable setting for oil, not gas. Shell has stated that they’re indeed looking for shale gas at deeper zones than Anatolia, but each party will be keeping an eye on one another.

Business in Turkey

As previously mentioned, the Turkish royalty rate is workable at the 12.5% standard they’ve levied in order to attract foreign investment. Drawing in Shell along with juniors such as Anatolia, the plan seems to have worked. In the meantime, TPAO is pushing along progress in further developing the Dadas shale. Despite the fact that CIKSOR hasn’t required hydraulic fracturing, the practice of fracking isn’t off-limits in Turkey by any means, with the country taking a more practical approach to its energy situation and allowing the producers to do what it takes to get the wells flowing.

A stable regime is in place in Turkey, despite the look of incoming turbulence from their neighbours to the south in Syria. Turkey’s Foreign Minister Ahmet Davutoglu has long been a proponent of a foreign policy dubbed “zero problems with our neighbours,” thus giving at least the confidence that this is not a country ready to start a war any time soon.

Instead, Turkey is leading the way as a hub from Eastern European oil fields to Western Europe, including the official announcement of the TANAP gas pipeline that will connect with Azerbaijan in the next 6 years. While supplies from outer sources are welcome, (save for those supplies attached to countries under sanctions) Turkey knows that it will benefit from the development of its domestic supplies.

The Bottom Line

Anatolia Energy has come a long way since it began to take root in Turkey. Along with its successful partner in Çalik Enerji, Anatolia has secured what it believes to be the entire acreage that covers the Dadas Shale within the Antep Basin. The partnership now has 1.2 million gross acres (581,429 net to Anatolia) at its disposal. Of that amount, 845,418 acres (422,709 net to Anatolia) will be used for targeting the Dadas.

By partnering up with Çalik, Anatolia has access to not only land positions, but technical know-how and regional awareness. Çalik’s a management team consists primarily of former TPAO staff, who know how to drill wells, shoot seismic and appease locals. Assuming they spud their first Dadas well in August, as scheduled, the Anatolia story will truly begin, and the potential for a new exciting international shale play will be flushed out.

G. Joel Churyfor the Bottom Line Report

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