TransAtlantic Petroleum's Robust Asset Profile Makes It a Good Buy

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May 26, 2015

TransAtlantic Petroleum (TAT, Financial) is an attractive investment. The company has been performing well amid declining oil prices. In fact, it delivered stellar operational results this year. Its production grew 24% to 1.9 million barrels of oil equivalent for the year, surpassing its own guidance of 6,000 barrels of oil equivalents per day. Also, TransAtlantic recorded astonishing 168% growth in proved reserves with 40% organic growth coming from its Turkey operation.

This is clearly reflected in its financial results for the year. Its revenue rose 8% to $140.7 million from $130.8 million in 2013, despite a decrease of 12% in the average price per barrels of oil equivalent. Also, its profit accelerated to $29.1 million or earnings of $0.77 per diluted share from net loss of $13.3 million or loss of $0.36 per share a year earlier.

Making the right moves

Additionally, TransAtlantic is carrying out 3D seismic and additional horizontal drilling programs in Turkey and Albania. These regions carry low royalties, and taxes thus remain pretty attractive financially. TransAtlantic has identified more than 20 additional field prospects within its Southeast Turkey operation. The company sees huge deposits at DadaŠŸ, in southeast Turkey that remains quite favorable in the future. It has large 3D seismic inventory in this area and drilled 19 wells in 2014.

Also, its Šželmo deposits look very promising in the future. In fact, the company has identified 77 locations that have been engineered and ready to go in Selmo. Further, it has instituted a waterflood pilot in Šželmo that should enhance its production in the future.

Moreover, the Molla Area has seen incredible growth in reserves. The company has increased proved reserves by more than 88% with $36.5 million of capital in 2014. It has seen 100% success with its 3D seismic in the Bahar field. Bahar has six wells that produced approximately 50,000 barrels of oil per day for the initial 90 days. The total production has increased to 4.1 million barrels from 1.6 million barrels of oil equivalents in 2013 at Molla. Further the company has identified large extra seismic leads at Molla that will enhance its production in the future.

TransAtlantic Petroleum is additionally focusing on the Thrace Basin in Turkey that remains a good future prospect with high grade oil reservoir. The proved reserves at this field have increased 9% with $10.5 million of capital in 2014. It has completed 9 conventional wells that produced 1.0 MMCFPD of initial production for average 30 days production. The company is planning to conduct a seasonal drilling campaign during the second half at this field.

Furthermore, the Albania acquisition remains a great production prospect for the company in the future. Albania has large reserve base that should enhance its production in the long run. The company expects another 150 to 300 barrels of oil from this acquisition.

Apart from these great production fields, the company is executing various other initiatives such as controlling costs and hedging its oil that continues to trade at Brent. It plans to reduce its G&A, LOE to about $10 million run rate going forward. Also, it is optimizing well costs significantly that should lead to greater profit with the growth in the oil prices ahead. It is making various adjustments at most of its operations in order to increase operational efficiencies that should result in better bottom line performance going forward.

Moreover, the company has good oil price hedges in place. The company has approximately $32.00 million of oil hedged at the end of fiscal 2014. This is a good move as further decline in oil prices will help the company benefit from this oil hedges significantly. The company plans to use these incremental proceeds from oil hedges to pay off its debt.

Conclusion

TransAtlantic Petroleum is a good bet. The company has deployed innovative multi-stage fractured technologies at its oil field operations that are enhancing its production with better costs profiles. The analysts expect its earnings to grow 83.90% by next year, which is good short-term return on the stock.

Moreover, the company is performing quite well on the operational front. It has profit and operating profit margins of 20.66% and 36.85% respectively for the trailing 12 months. Its balance sheet carries total cash of $35.13 million and has total debt of $158.60 million. It has operating cash flow of $78.05 million.