1/ Large International Landholdings of approximately 3 Million Net Acres in Italy and Tunisia Cygam has interests in five exploratory concessions in Italy and four exploratory concessions in Tunisia, encompassing four million gross acres or approximately three million net acres. The company generates ongoing cash-flow from oil and gas producing properties in Alberta but exploration is the focus and that focus is big: Cygam’s Mediterranean land holdings superimposed on a map of Alberta would occupy a strip of land 60 kilometres wide stretching the 275 kilometres from Edmonton to Calgary. See ‘Projects’
For example, Cygam’s permit CR 148 (Aretusa) has a structure of about 110 km², and a potential 100 m of net pay. Potential reserves in place for this prospect are conservatively estimated in the range of 300 million barrels, and could reach as high as 1 billion barrels. The company has several permits with potential in excess of 100 million boe each. See ‘Projects’
Cygam’s head office is in Calgary, but the company also has offices and resident personnel in both Rome, Italy and Tunis, Tunisia. The management team knows the governments of both countries and has adapted to working with both administrations in a productive manner. See ‘People’
Cygam Energy is an emerging oil and gas company that is creating shareholder value through the acquisition, exploration and development of international oil and gas permits, primarily in Italy and Tunisia. The company came about through the merger in October, 2005 of Sheer Energy, a TSX Venture Exchange public company, and two private Italian companies Rigo Oil and Vega Oil, controlled by Fabrizio Rigo, an Italian geologist who had acquired substantial land holdings in Italy and Tunisia. He had also developed good working relationships with governments in both those countries. Since the merger the company has acquired additional permits in both countries and continues to aggressively seek additional permits while conducting exploration programs on its existing permits.
Cygam’s project strategy is to focus on exploration projects in areas where land is available, apply for exploration permits and if successful in obtaining permits on a 100% basis, attract other companies to come in on a promoted basis. The level of promotion depends on the size and quality of the prospect, and how many acres are involved. Cygam generally likes to keep the operatorship wherever feasible. In almost every prospect they like to keep a direct working interest. Typically, they keep 10 or 20% and farm-out the rest on a 60/40 basis that still leaves the company with a large interest in the prospect in case of a discovery.
The company generates ongoing cash flow from interests in oil and gas producing properties in Alberta, Canada, while building shareholder value through extensive international exploration concessions. These concessions consist of various interests in five exploratory concessions in Italy and four exploratory concessions in Tunisia, encompassing four million gross acres (approximately three million net acres). Cygam's international land holdings superimposed on a map of Alberta would occupy a strip of land 60 kilometres wide stretching the 275 kilometres from Edmonton to Calgary.
It should be noted that while Cygam operates in two countries, Italy and Tunisia, which to outsiders often give impressions of instability, these impressions are often misleading. Italy for example is often considered to have unstable governments but in practical terms, the government for the most part is stable. It is the governing parties that are not. On the positive side, Italy’s oil and gas royalty structure is one of the most favourable in the world at a low 7%. Tunisia has one of the more stable and progressive governments in North Africa, and the royalty structure and lack of requirements for a signature bonus in oil & gas leases makes operations in the country very attractive.
Italy
In Italy Cygam currently holds 354,584 gross acres/280,000 net acres of onshore and offshore concessions, consisting of five approved permits and one pending application as follows:
B.R268.RG (Miglianico East) - Offshore Adriatic Sea 60% Working Interest for 18,781 Net Acres. Probability of Success: 23%. Potential Resources: 162 MM boe Oil/Gas. (Reserves based on independent evaluation). Timing: 2009-10. BR268 is offshore in the Adriatic Sea, a shallow sea with depth ranging from 40 to 50 m. The prospect could have a recoverable resource in the order of 250MM boe of oil based on preliminary independent evaluation, providing Cygam with about 150MM for its 60% interest. Cygam has reprocessed and interpreted the seismic on the prospect and the final seismic interpretation shows a very large structure with very high potential. By comparison, a 250 million barrel recoverable resource would be very hard to find in continental North America.
C.R148.VG (Aretusa) - Offshore Sicily 100% Working Interest in 83,264 acres. Probability of Success: 10%. Potential Resources: 300 MM boe Oil/Gas. Timing: 2009-10. Offshore Sicily with a water depth of about 90 to 100 m. which is still quite accessible with a jack up rig. Cygam has identified a very large structure of about 110 km², which large by any standard, and with an estimated 100 m of net pay. The exploratory well will be fairly deep (in the order of 4,000-4,500 m.) and expensive, but the potential resources in place could be in the order of 1B boe, with potential recovery in the order of 300MM boe, a substantial prospect for a company the size of CYGAM. The company is in the process of obtaining about 1,500 km of older 2-D data which will then be reprocessed and reinterpreted. However, they already have seismic data which indicates the presence of a very large structure.
Civitaquana - Onshore East Central Italy 65% Working Interest for 98,849 Net Acres. Probability of Success: 10% Potential Resources: 175 MM boe. Oil/Gas (Reserves based on independent evaluation). Timing: 2009-10 Currrently in process of acquiring additional seismic.
Posta Nuova - Onshore SE Italy 100% Working Interest in 38,154 acres. Potential Resources: 4 BCF of Gas. Timing: 2009. Good cash flow generating potential.
Montalbano - Onshore South Central Italy 30% Working Interest for 12,234 Net Acres. Probability of Success: 20%. Potential Resources: 0.24 MM boe Oil/Gas. Timing: Q1/09. Good cash flow generating potential.
Masseria Montarozzo (Pending) - Onshore SE Italy. 100% Working Interest in 38,300 acres. Potential Resources of 1 MM boe of Oil/Gas. Approval expected: Q4/08
CYGAM is one of the major landholders in Tunisia from the standpoint of exploratory permits. The major operator in Tunisia is ENI, the Italian state company, but other private sector companies are also active including Pioneer, Marathon, and OEMV (an Austrian company). The Tunisian state oil company ETAP does not get involved as an operator, but can become a partner in case of a discovery. The average participation in case of a discovery is about 50% which is very reasonable by North African standards. ETAP also repay all of the past seismic and well exploration and development costs, and from then on till the field goes into production contribute their share of costs. In Tunisia Cygam currently holds 3.6 MM gross acres and 2.4MM net acres of onshore concessions, consisting of four approved permits as follows:
Sud Tozeur (PSA) - Onshore Tunisia. 100% Working Interest in 1,082,283 acres. Probability of Success: 25%. Potential Resources: 73.1 MM boe (Oil/Gas) Drilling planned: Q2-Q4/09
Jorf - Onshore Tunisia. 100% Working Interest in 931,060 acres. Probability of Success: 10%. Potential Resources: 32.9 MMstb (Reserves based on independent evaluation for 100% interest). Timing (new seismic): July/08
Bazma (PSA) - Onshore Tunisia. 100% Working Interest in 399,308 acres. Probability of Success: 25%. Potential Resources: 31.3 MM boe (Oil/Gas) Drilling planned for Q4/08
Sud Remada (PSA) - Onshore Southern Tunisia. 14% Working Interest for 164,250 Net Acres. Probability of Success: 15%. Potential Resources: 7.6 MM boe (Oil/Gas). Drilling: Q1/09
In Alberta, Cygam has small interests in a number of unitized oil and gas fields in Alberta. The company’s net average daily production for the last quarter of 2005, expressed in barrels of oil equivalent per day (boe/d), was 38.04 boe/d. Daily production, expressed in boe/d, is based on the industry standard conversion factor of 6 Mcf equalling one barrel of oil.
Cygam’s Management Team is internationally educated and experienced. Key members include:
President/Chief Executive Officer Dario Sodero, a Geologist with over 35 years of Canadian and international oil & gas experience. Dario was born in Italy and graduated from the University of Turin with a Doctorate in Geological Sciences in 1967. After graduation, he emigrated to work in Canada’s oil patch move to Canada in late 1969 and has worked in Alberta, British Columbia and frontier areas including the Canadian Arctic islands, Greenland and international areas of Europe and North Africa. Over the past 30 years he has worked in a succession of senior management positions with Cities Service and a number of public oil & gas companies.
Vice President, International Operations Giuseppe Rigo has 24 years of professional experience as a geologist in Italy and Mediterranean region in oil and gas exploration. He is the son of Fabrizio Rigo who was the founder of both Rigo and Vega oil and you say the also represents the major shareholder which is the Rigo family and is currently president of both subsidiaries Rigo and Vega oil. He lives in Rome, close to Cygam’s Mediterranean operations.
Chairman of the Board Neli da Silva Rigo is the widow of Fabrizio Rigo, and the step-mother of Giusseppe Rigo. Mrs. Rigo is a businesswoman with many years of investment experience
Chief Financial Officer Ali Rawji graduated from the London School of Economics, and is a CA and CFA with 25 years of Corporate Finance and international financial experience with accounting firms (AA & Co., PWC). He worked as an accountant in England before emigrating to Calgary to work in the securities field, working with the TSX Venture Exchange and in venture capital investment banking (First Associates Inc.) in the financing of junior companies.
Cygam management considers that both Italy and Tunisia offer the company excellent opportunity for future growth. For many years, exploration in both these countries was restricted. Only in the last 10 years has exploration been opened up to private interests so there is tremendous opportunity. In both countries, the royalty structure is excellent. As well, the incentive to explore is strong because there is no requirement to pay a signature bonus to acquire exploration properties, only a work commitment which usually involves either reprocessing or reinterpreting past seismic data, or acquiring new seismic, then eventually drilling an exploratory well. This is significant incentive for a small company.
Another important factor is the size and degree of exploration possible in Italy and Tunisia compared with North America. Cygam has obtained exploration permits for land positions of a size and resource potential it would never be able to obtain in North America. Specific reasons why Cygam has chosen to operate in these two countries include the following.
Italy
Management considers the existing exploratory permits in Italy to have great potential for the future growth of the company. In the past, Italy was somewhat neglected by oil and gas companies, partly because of the former monopoly the Italian state company, ENI, had on exploration permits. However, new European Community regulations introduced in the early 1990s under the mandate of the European Energy Commission forced ENI to relinquish prized exploration acreage.
By way of example, from 1941 to 2004 only 5,795 wells, including 1,187 offshore wells, were drilled in Italy. By contrast, in Alberta from 1955 to 2005, 298,617 wells were drilled, with over 20,000 wells drilled in 2005 alone. In Italy in 2004, only 30 wells were drilled. So from an exploration point of view, there is vast exploratory and drilling potential in Italy. The Italian government has stated its goal is to reduce oil and gas imports and provide an environment conducive to exploration for both domestic and foreign companies. To encourage exploration, Italy’s royalty structure is one of the best in the world. For onshore permits, the state royalty on production of both oil and gas is a maximum of 7%, with a provision that no royalties are paid on gross corporate yearly production less than 125,000 barrels of oil and 700 MMcf of gas. For offshore permits, the state royalty on oil production is a mere 4%, with a provision that no royalties are paid on gross corporate production of less than 300,000 barrels of oil per year. Offshore gas production is subject to a 7% royalty, but the first 1,750 MMcf per year are royalty free. The combined corporate, federal and provincial tax is a maximum of 32% and there are no restrictions on repatriation of profits.
As a result of increased exploration activity in the last decade, by 2006 Italy had become the third largest producer of crude oil and natural gas in Europe after the United Kingdom and Norway. Italian production currently stands at 330,000 barrels of oil equivalent per day (boepd), which is comprised of 135,770 barrels of oil per day (bopd) and 1,165 million cubic feet per day (MMcfpd) of natural gas. This represents about a third of Italian consumption, and it is expected that Italy may be able to produce about half its consumption, or about 500,000 boepd, within a few years. This has given the Italian government substantial motivation to provide significant incentives to international and domestic oil & gas companies to develop the Italy’s onshore and offshore resources, and the discoveries that have been found as a result have been substantial. The giant Monte Alpi oil field, discovered in 1987 onshore southern Italy, is now contributing approximately 90,000 bopd, with further development activity planned for the future.
Tunisia
Management also believes the existing exploratory permits in Tunisia have excellent potential as a source of Cygam’s future growth. Tunisia, like Italy, has been neglected by most large multinational oil and gas companies, partly because of a preconceived assumption that no giant oil and gas fields could be found there due to the country’s small size, compared with neighbouring Algeria and Libya. While it is the smallest of the main oil producing countries in North Africa, Tunisia offers, in contrast to its neighbours, a politically stable environment and an attractive investment climate in its petroleum sector. The government, the national oil company (ETAP), and the Department of Energy (DGE) encourage foreign participation in oil and gas exploration and production. As a small oil producer, nestled between Algeria and Libya, the country occupies a strategic position and is close to major European markets.
Most of Tunisia’s production comes from five major fields: El Borma, Ashtart, Miskar, Ezzaouia and Sidi El Kilani. The country currently produces 111,000 boepd, comprised of 71,000 bopd of oil and 240 MMcfpd of gas. A network of oil and gas pipelines covers the country linking fields with ports and urban centres. Tunisia has hardly been explored in comparison to Alberta. Only 541 wells were drilled from 1932 to 2005, ten of them in 2005. Vast permits of over one million acres may have had only a few wells drilled to test their potential. Cygam has shared in this potential: it’s Sud Tozeur prospect is one million acres in size, and two others are almost as large.
The company’s strategy is to acquire large land positions that it controls, then look for partners to share in the venture, while remaining as operator of the project. Ideally they like to have partners that offer reciprocal agreements for CYGAM to participate in other ventures within Europe and the Mediterranean basin, so while the partner may be operating their venture, CYGAM gets exposure to additional possibilities. Cygam’s philosophy is that exploration is not a sure thing but increasing the number of prospects increases the chances of success.
For the past few years Cygam has been quietly assembling a significant portfolio of International Landholdings in Italy and Tunisia, and the company is now capitalizing on that foresight and planning with properties that are now at the stage where the company is ready to shoot additional seismic and/or drill wells. Since most of Cygam’s prospects have been generated in-house, the company controls what happens in these projects. And the search for new prospects is ongoing: within the next six months the company expects to announce additional permits in other areas of the Mediterranean. Currently most of CYGAM's ventures are in the exploration stage but they would like to elevate these as soon as feasible to a development phase. Sud Remada in Tunisia is very close to moving from exploration to development. If the current well being drilled is successful, CYGAM could be drilling development wells in Sud Remada for the next four to five years.
Cygam’s 2008 business plan contains a number of initiatives, including the drilling of two wells in Tunisia and one in Italy; conducting two seismic acquisition programs in Tunisia; and further developing plans to drill additional wells in 2009. The company has positive working capital and plans for further financing. Several joint venture partners have indicated their willingness to participate in Cygam prospects on a promoted basis and the company expects these partners to participate in the exploration of new areas with significant oil and gas potential in the Mediterranean basin. Cygam’s solid working capital base and plans for further financing, combined with long-term relationships with several joint venture partners willing to participate in Cygam prospects on a promoted basis, will lead to expected future participation in new exploration areas with significant oil and gas potential in the Mediterranean basin.
Since 2005 when the three companies - Sheer Energy, Rigo Oil and Vega Oil - were brought together and renamed Cygam Energy, the Cygam management team has put together an enviable list of accomplishments. The company has obtained nine exploration permits in Italy and Tunisia, and has one exploration permit pending in Italy. The company is reviewing past seismic, and shooting new seismic, for many of those areas. Exploration acreage is approximately 4 million gross acres/3 million net acres in Italy and Tunisia. Several of the company’s permits have potential in excess of 100 million boe each. The company’s total gross un-risked potential resource is estimated to be in excess of 1 billion boe of oil and gas. While things take time to develop In a business as complex as oil and gas exploration, activities are moving forward on many front. For example, Basra in Tunisia was acquired in 2006 and after evaluation of the seismic, the company plans to drill the first well by the last quarter of 2008. The company continues to execute on its strategic plan of moving forward on all projects from the conceptual stage through seismic evaluation to the point at which the first exploration well can be drilled.
Cygam’s major strength is that for a small company, they have assembled a large number of exploration permits, all of which have very large land positions. Cygam is not a typical 1, 2 or 3 permit company, but has 9 permits each of which have excellent potential for exploration and development. On a number of these properties they are now ready to look for partners, and are ready to begin drilling operations.
The company has a number of institutional shareholders that came in during the financing that was done in mid-2007. The majority shareholding is still owned by the Rigo family, but as additional financings are done, it is expected this shareholding will be diluted as additional investment capital and investors are brought in to help fund the company's future growth. The company expects to do another financing in late 2008. Current working capital of approximately $7.5M (April, 2008) is sufficient to fund the company's projects for the next year or so, depending on the level of participation by the company versus potential future partners that may be invited to join the company’s projects.
Shares outstanding are 85.6M, of which 56.9M are subject to a 6 year escrow. Market capitalization as of June 9, 2008 closing of $.90/share was $68.5M. Shares Fully Diluted are 93.1M, of which management and insiders own 69%, so management interests are very much aligned with those of shareholders. Current options are exercisable between $0.60 and $1.31 per share.
1/ Large International Landholdings of approximately 3 Million Net Acres in Italy and Tunisia
