TransAtlantic Petroleum's CEO Discusses Q3 2013 Results - Earnings Call Transcript

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TransAtlantic Petroleum Ltd. (NYSEMKT:TAT) Q3 2013 Earnings Call November 7, 2013 8:30 AM ET

Executives

Malone Mitchell – Chairman and CEO

Wil Saqueton – VP and CFO

Ian Delahunty – President

Analysts

Neal Dingmann – SunTrust Robinson Humphrey

Jonathan Fite – KMF Investments

Curtis Trimble – Global Hunter Securities

Operator

Good day, ladies and gentlemen, and welcome to the TransAtlantic Petroleum’s Third Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over Malone Mitchell, CEO. Sir you may begin.

Malone Mitchell

Good morning. Thanks for joining TransAtlantic on our third quarter call. After bottoming our production in August, in the third quarter, our production has continued to grow with the execution of our announced drilling program. We’ve had very good results from our Thrace area gas wells in the third quarter and are now drilling offsets to our initial Teslimkoy horizontal.

In the Southeast, we drilled four wells. We’re in the process of finishing the drilling that has been deferred on completion, and we did have poor result on our Göksu-5. We’ve moved the second rig into our Şelmo field with the intention to drill all of our Molla area wells off of our 3D-seismic assets acquired and processed.

In Bulgaria, we’ve reached an immediate casing point at 8,600 feet and expect to be at our objective formations before year-end. We continue to expect to exit year-end at over 5,000 barrels a day. We will have a Board of Directors meeting from December 8 through 10 to review our budget and plans for 2014. We expect to announce our 2014 budget and production ranges along with our year-ending production and operational update during the first week of January.

With that, I’d like to turn the call over to Wil Saqueton, our CFO, to give more detail on our quarterly financials, and then to Ian Delahunty, our President, for more detail on operations. We’ll then take your questions and be happy to answer those. Wil?

Wil Saqueton

Thanks, Malone. We are pleased to file the third quarter 10-Q ahead of the SEC deadline for the second consecutive quarter.

For the third quarter, total revenue was $33.3 million, up 5% over the second quarter. Operating income of $2 million was flat. The third quarter produced a net loss from continuing operations of $4.8 million or $0.01 per share, compared to net income from continuing operations of $2.9 million in the second quarter. This $7.7 million quarter-to-quarter decline was primarily due to the change in our commodity derivatives valuation with the second quarter including a $4.8 million unrealized mark-to-market gains and the third quarter including a $2.2 million unrealized mark-to-market loss.

Our adjusted EBITDAX from continuing operations was $20.4 million, up 16% from the second quarter. Our third quarter G&A was $6.4 million and this is the lowest quarterly G&A figure since the third quarter of 2010 which was prior to our TBNG and Direct Petroleum acquisitions.

Our lifting costs were flat at $10.73 per barrel of oil equivalent and our operating netbacks remains strong at over $73 per BOE in the third quarter. Adjusted discretionary cash flow was $19 million or $0.05 per share and up 18% over the second quarter. As expected, we borrowed $10 million from our credit lines to fund our CapEx program and our third quarter CapEx and seismic expenditures were $34 million.

We ended the third quarter with $12.3 million of cash and approximately $36 million of availability on our credit lines.

I’ll pass the call over to Ian.

Ian Delahunty

Thanks very much, Wil. Good morning everybody. Thanks for joining the call. I’ll add a little bit of color to Malone’s comments at the start of the call with respect to drilling and completion. The good news, we’ve proceeded [ph] the Şelmo-22 H1 horizontal on the MSD and are currently tripping out of the hole to run a Packers Plus completion. Some of you may remember, the last call that we discussed drilling two wells on a single pat in Şelmo and this is that pad.

The first well was actually the S-22 H2, which was drilled in significantly fewer days and the reason for that is we encountered some very heavy oil showed and some heavy pressure on the second well and had to change the way we oriented the lateral. So we’re pretty excited to get both of those completed with SIMOPS completion and move the rig to a successive MSD horizontal.

And another part of the Şelmo field, we’ve moved the I-9 drilling rig to Şelmo-36H which is also an MSD target. We feel pretty comfortable as we’ve discussed in earlier calls that the 3-dimension model we produced for the Şelmo field has let us into areas where we have undepleted MSD potential and the oil flow and kind of the artesian showed we saw on Şelmo-22 H2 were confirmation of that.

So continuing Şelmo with two rigs and get back also to the LSD which is a lower horizon and will drill horizontal to appraise the success of the Şelmo-13 as well. We’ll drill six to 10 additional MSD horizontals and two to four additional LSD horizontals in the coming months and into 2014.

Also in the Southeast, we’re drilling the Ambarcik-2 Bedinan exploration well, which offsets our Arpatepe block. We have a 50%working interest in that field, as its one of the deepest Bedinan wells by subsea in the country and we’ve encountered some interesting bits of data in the well and expect to be off that well and completing before the end of the year.

Moving to the west of the country to Thrace Basin. We planned to spud the second Teslimkoy horizontal, and in two to five days that will be the BTD-5H. This is an appraisal of the constant improve with the BTD-4H which was a Teslimkoy horizontal and I am going to offer a few bits of production information on those wells in just a moment. The continuous drilling, we’re drilling as Malone said in Bulgaria with relatively decent ROP [ph] and performance. As he said, of around 8,700 feet and 12.25 hole and plan to set the 9.625s fairly soon.

In this quarter as well, we completed the Edirne minimum well concept wells which we’ve discussed to some degree, but essentially it was an idea to bring sort of North American very short drilling curves to Turkey and prove that we can drill 1,500 foot wells in a 24 to 72 hour times period. And we feel like transferring that to the flings of the remaining conventional PUDs and the South Thrace basin is probably a very economic spot.

And so five of the six wells in Edirne have been successful and they were 90% working interest wells. So, I’ve been very happy with the outcome of the Edirne minimum well concept. We drilled an exploration well in our JV with TGO [ph] which was abundant at pallet one [ph] also in this quarter which was successful that was recently tested and IP-ed at about a million cubic feet per day.

And we plan to offset the Kayı-14 Mezardere completion which we announced in the quarterly information in terms of the IP recompletion which was around five million a day.

So to give you a bit more color on what we’ve seen from the ongoing Mezardere campaign and also the Teslimkoy horizontal campaign. The BTD-4H which was the first Teslimkoy horizontal is currently doing between 2.5 to 3 million a day and it’s done about 120 million cubic feet of gas since we drilled the well. And so we’re talking about an IP-40 number here and that’s good enough for us to continue the program. We were essentially waiting for the IP-30 to evaluate the economics and they look pretty good, particularly considering generally when operators drill the first horizontal in the field, there is a very steep learning curve in terms of completion techniques, carbon quantity, spacing, fluid quantities that sort of thing.

The Kayı-6 well which was an appraisal well – I’m sorry, our Karanfiltepe-6 well which is an appraisal well in our Karanfiltepe field has done around 250 million cubic feet of gas, continues to flow at about 1.7 million cubic feet, and so we’re pleased now with our focus on monetizing particularly the South Thrace assets. Kayı-14 which I mentioned earlier was a Mezardere recompletion and we’ve been pretty happy. That was actually the highest IP in the South Thrace region for wells which underwent fracture stimulation and at IP around 5.5 million a day. And in short hor [ph] has done about 60 million cubic feet and that’s in roughly 10 or 15 days of production.

So for us, if we’re going to drill further into the Mezardere, we talked about last call the concept of drilling a horizontal in that formation and as we used to say now that we have the success that we were looking for and plan to continue designing in Mezardere horizontal and/or the equivalent and plan the spud the first one of those wells by the end of the year.

We’re drilling appraisal to Karanfiltepe-6 called the Karanfiltepe-5 which we’re currently testing. And will give you a bit more information on that when we do get the production test data.

In the Southeast, as Malone commented, Göksu-5 confirmed the presence of fractured mine stone play in the Southern edge of the block. We encountered multiple anticipated faults and showed to appraised the 3D following in full following its processing and interpretation prior to appraising or picking additional locations offsetting the Göksu field.

We isolated the Oba-1 water producing lateral areas and focused on an area which from valuation we determined to be oil saturated and we’re successful and turning the wells in oil producer. We’ll probably go back into the well and stimulate to increase the productivity towards the field of that well.

With that, I’d like to turn the call back over to Malone to conclude the drilling and operations update.

Malone Mitchell

Thank you, Ian. And as we reported in there, the Molla 3D is now completed on the North end and we should have the process that back in our offices over the Bahar area in the next one to two weeks, that’s running about three rigs later than we probably announced on the earlier call as a result of a delay and coordinating the release of some data with an offset partner that we were shooting there.

We now have two crews actually shooting down on the Molla field and Göksu field areas on the South end of that, so we expect to finish that. And we’re waiting on that 3D because the structures on – and actually the shapes of some of the fields look a little differently where we have 3D than they did when he had 2D.

As we said, even drilling these wells on an East, West basis, we’ve encountered faults and it’s let us to even consider pose to 3D that we may need to reorient our laterals a little differently so that we stay within fault blocks instead of crossing faults blocks as we’ve had challenges with [indiscernible].

Now in our cash flow we do expect to drill fairly large portion of our credit lines leading into the end of the year and that leave us with plus or minus about $15 million credit availability at the end of the year. We are in the process of expanding and renewing our credit lines to extend both tenure and the size. However, at the end of the year we do expect to reduce our activity level. And principally we’re spending in the third and fourth quarter a very large amount for the company on seismic in both the Molla and in the Osmanlı suite. And we expect that inventory to carry us forward with really a drilling inventory basis. And with the reduction of that expenditure we expect to be drilling and developing well within our cash flow.

All of our budget forecasts for next year that we’re preparing for the board indicate, we’ll grow surplus cash flow and be able to grow our production.

So with that, I would be pleased for you to ask questions and we’ll do our best to answer those.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Neal Dingmann of SunTrust. You may begin.

Neal Dingmann – SunTrust Robinson Humphrey

Good morning guys. So, Malone for you again, you don’t have a lot going on now. I guess what I’m trying to get my hands around just – if you could just walk just I guess simplistic. How many rigs you have running now and Malone in your comment as far as cash flow out – definitely outpacing your spending next year, I know you haven’t obviously done the budget yet, you mentioned that. I’m just kind of wondering how many rigs are running now, and kind of what’s your thoughts into next year if you’d keep kind of the same active drilling program.

Malone Mitchell

Well we’ve got six running right now including Bulgaria and we expect five to six running depending on where you’re at on a rig move and we actually expect that to reduce to three to four. We expect to be drilling in the Southeast with two rigs based on our 3D to be able to confirm what we’re seeing there and then we will – based on the success and the productivity from the 3D, we’ll make a decision later in the year whether we should increase that pace.

In the Northwest, we’ll be drilling, generally it looks like pretty well full one rig program during the course of the year, but as Ian said, we’ve got a fairly good handle on productivity up there. We do expect to finish the initial well in Bulgaria this year and then to appraise it. There is two different primary producing horizons there and one secondary. So we’ll expect – we’re going to expect success there and expect to go forward during the course of the year with probably one rig or one rig on kind of an intermediate basis there.

So again we’ll be pulling from kind of in this third and fourth quarter from five and as many as six rigs running down to probably more a year around pace of three to four rigs. And we’re really forecasting very little in the way of seismic expenditures in Turkey next year where this was our largest year for seismic expenditures.

Neal Dingmann – SunTrust Robinson Humphrey

And Malone part of that, what Ian mentioned about the shorter laterals, on your frac program next year then, I guess he was referring to more in Southern Thrace. Will that be the primary cut frac probably – is that kind of which you’re really targeting next year on just the shorter fracs or I guess what a better way to asking maybe what you’ve learned sort of now historically from the frac program now that you’ve been in there and would you run one or two spreads?

Malone Mitchell

Well BTD-4 hor was at really, really good results just off of the four stages. So we would like to get our laterals, before we could see something with a greater number of stages. And of course a huge, huge focus in our Southeast that we believe will be stimulated on an ongoing basis is, we continue to believe that one of the primary objectives, the primary reason for drilling, or for shooting the 3D is to enable us to successfully be in zone on our Bedinan sands and on our Dadaş and on our Hazro in the Southeast.

We’ve made a couple of good completions on a vertical basis. We struggled on sand even filing the zone, standing zone on horizontal basis. So our objective there will be to drill probably first laterals that we do four to six stages and then ultimately match some of the things we do in North America where we can get out and do 10 to 20 stage stimulations there.

So we’ve never lost sight. The objective for the 3D was to enable us to place these horizontals and the horizons and produce much bigger, more productive wells, as well as greater success ratio obviously on understanding where it plays at.

Neal Dingmann – SunTrust Robinson Humphrey

And lastly just your thoughts on your current acreage. Will you continue – I know you didn’t bid active, going after different licenses, you want to get successful on that Tepe-1, I know you’re going to test above that on a license. You got maybe mid this year. That’s small [ph] when you sort of look at where you stand now acreage-wise, lease-wise, and then your thoughts about that next year?

Malone Mitchell

Well, we don’t have 10 million acres like we had a number of years down that Ian’s spoke about a number of times, which is Şelmo, the Molla area and the Northwest Thrace and Turkey. And that’s brought us down to something closer in the neighborhood of two million acres that we think is perspective [indiscernible]. So that’s the focus.

We believe that’s the areas in the country where we know there is hydrocarbon and we’re going to drill, where the challenge is to keep your wellbores in the sections that have hydrocarbon. And you’re not taking a risk on a basin that you may or may not find hydrocarbon in for your expenditures now. When we made the acquisition that included the Tepe well area, we really kind of anchored that acquisition off of the known vertical oil field at Molla.

And Molla is a Mardin producer and we’re shooting 3D over that now. So we expected that our acquisition basically to be anchored off of that. We drilled the Tepe, we were turned out structurally correct, but at least in the Bedinan section it was oil. So again we believe that once we get our 3D over the Molla field portion of that acquisition, that’s where we anchor the economics for making that acquisition.

Neal Dingmann – SunTrust Robinson Humphrey

Very good. Thanks for the color, Malone.

Malone Mitchell

Sure.

Operator

Thank you. Our next question comes from Jonathan Fite of KMF Investments. You may begin.

Jonathan Fite – KMF Investments

Hi, good morning everybody. Thanks for your call today.

Malone Mitchell

Good morning, Jonathan.

Jonathan Fite – KMF Investments

Over the past couple of quarters, you’ve focused investor attention on these three major development areas, in Şelmo, in Thrace and Molla, and I’m excluding Bulgaria now. Can you summarize your 1P and 2P reserves across these three kind of focal areas. I know you give glimpses of this in recent investor presentations, but I am not sure if that’s kind a comprehensive view. Is there something you can walk through today or we could…

Malone Mitchell

I’ll turn to Ian. I’ll let Ian comment on that. You’d send in a very, very good question, yesterday and the presentation, unfortunately it was a little bit of short order in order to get us into presentation mode for that today, but that’s something we would expect to put out to give a little more color on where we see these different plays have an potential.

We’ve been poised pretty conscious to try to stick with what [indiscernible] tells us and try to not get too far out of line with the kind of resources or anything like that, but let me turn that to Ian and let him comment on that.

Jonathan Fite – KMF Investments

Okay.

Ian Delahunty

Thanks, Malone. Hi, Jonathan, thanks for the question. Sure, let me walk through couple of reserve highlights. Şelmo is the biggest P1 valuation on our book. And it’s sitting around 9 to 10 million barrels of proved reserves. Now depending on the performance of the horizontals which we’re drilling now on the MSD, what we’re able to access in the LSD. What the MSD horizontals do when we stimulate into the LSL. Those will all have a positive potentially impact on reserves going into 2014.

That P1 number is essentially based on an infill vertical drilling campaign. So, it’s very different dynamic now that we’ve remapped it and look at this [indiscernible] in a 3D model, and that probably leaving any secondary engineering options aside. And moving into the areas which we discovered last year; Bahar and Göksu. The Bahar structure alone we have around six million barrels of P2 reserves. And to give you an idea of what we’re looking at in terms of decline curves from those wells, Bahar-1 has done around a 110,000 or 120,000 barrels since it’s been put online about a year ago or 11 months ago.

So not entirely share what to give you in terms of guidance on our reserves in 2014, but moving kind of not where the Thrace Basin – you’re talking around the area at end of 2012, we’re looking at net our interest somewhere between 5 to 6 Bcf in the Southern Thrace Basin and then a little bit more than that in the Northern Thrace with our TPAO [ph] JV. And again those reserves were fairly conservative and based on past performance.

We’ve done a lot better this year. You’ve probably seen our production, particularly in the last three months with reversing decline and then adding quite a lot of gap. And that’s essentially due to better zone isolation, its better engineering, its better geology, it’s picking better wells to frac, it’s figuring out which structure should be monetized and it’s also doing better on the production side.

So we feel like we’ve done a much better job in Thrace and that a lot of the assumptions that were built into the 2012 reserve numbers were probably not realistic and I mean that on the downside. They are probably much too conservative based on what we’ve been able to achieve this year.

I hope that gives you...

Malone Mitchell

And Jonathan…

Jonathan Fite – KMF Investments

Yes, I appreciate that color commentary. I think as we exit ‘13 and enter ‘14. I don’t know what details specifically broken down to in the reserve report, but to the extent that kind of by focal areas breakdown of the 1P, 2P, 3P numbers, I think that’d be really interesting to investors just to kind of map your operational activities to kind of valuation anchors. So, just some feedback and would like to see that maybe in a future operational update or investor presentation.

Malone Mitchell

Sure. We appreciate it.

Jonathan Fite – KMF Investments

Speaking in kind of valuation anchors, I think one of the big puzzles for TransAtlantic investors is the discount between the price of our shares in the market, the underlying intrinsic value of our company. But today we would capture that the largest discount to its proved reserve value or other small cap E&P companies are often – somewhere between their 1P, 2P values. Can you comment on this disconnect?

Malone Mitchell

Well, I think that the number one factor we’re showing production growth which I think that not only we’re showing that, now we’ve increased our activity level and we produced a backlog as you see from the number of wells drilled, number of wells completed. We’ve produce a backlog that as we complete will take that production, a good deal higher in addition to the production. So I think people wanted to see that the production base in the company wasn’t dwindling and the cash flow was turned around. And we’ve taken the process to achieve that and I think that hopefully year-end results and then quarter reflecting this higher production again, we’ve – kind of our lowest production period as we came out of that declines from the recompletions and [indiscernible] back in 2011.

And the low activity when we kind of revamped the management of the company in the first half of this year wound up with us actually bottoming in August and then turned around. We’ve been on a pretty steady growth path since then with few wells. So I think once we see that, they will start to see a connection probably back into the production and cash flow matching what the reserves are.

Jonathan Fite – KMF Investments

Thanks, Malone. By our estimates it seems that you guys would need to produce somewhere in the 6,500 range to reflect your 1P valuation. I know a couple of years ago, you guys had forecast for around 10,000 and there was a recent analyst report kind of forecasted something close to that number in 2015. Do you still have a clear path, so the 6,500 level implied by your 1P valuation or even the higher levels implied by the forecast a couple of years ago?

Malone Mitchell

Yes, we certainly think that your comment is justified with regard to the production and the reserve numbers if that’s not – that’s a very sensible comment you’re making there. I don’t want to comment on our production levels in 2014, what our production targets is going to be until we get approval from the board on our budget and we’ve got about four variances on the budgets that we’re producing. So I don’t – it would be pre-mature for us to say that until we get approval on a board number, a budget number for next year.

Jonathan Fite – KMF Investments

That makes sense. And I think Ian hinted at this a little bit earlier, but given the market isn’t really giving any credit at all to your land bank and associated 2P, 3P reserves, can you explain how the drilling activity, just on a high level relates back to the reserves? Are the efforts underway in kind of rough plans for ‘14? Are these basically converting PUDs and the 1P number to PDPs, or are these conversions of kind of 2P, 3P reserves into proven status. How should investors think about the activities in relation to the reserve report?

Malone Mitchell

We still have been drilling a very large number of exploration wells that don’t have reserves associated with them at time we drill them. The number of wells drilled that are PUDs or anything have been fairly minimal anywhere other than Şelmo. And as we said in Şelmo, we’ve taken actions to drill in the LSD, which we really didn’t have reserves booked in. And we’ve been able to prove production out of that this year which we would expect to be reflected in next year’s reserves.

So we expect to have a couple of wells of horizontal performance, horizontal well performance at this point in time is reserved and booked is still the outcome is equivalent to single vertical well. And there is no reserves generated essentially for the horizontal wells or well models in that Molla area and the Thrace because there is no such horizontal well to take analog production curve off of towards drilling this wells this year.

So the performance Tepe wells and the performance of the couple of the Göksu wells have been extremely good. And what our goal is, is again I think next year simply to drill fewer wells based on the 3D hopefully have a much more productivity per well and then as we become more and more comfortable with our ability to tie that 3D model back to what we achieve and then to look at back at that activity level.

Jonathan Fite – KMF Investments

That makes sense. One final question. I guess for the areas where you are drilling kind of to exploit I guess existing reserves, when the results come in, how would you characterize the performance versus the NOI assumptions in the reserve report? Are you finding drilling results to be in line with the underlying reserve assumptions, a little behind the curve, or are you kind of beating the underlying estimates associated with those reserves based on kind of the areas where you are drilling against reserves?

Malone Mitchell

Well, we’re beating – a good example of problem I guess, and it goes back to the 3D. We shot 3D up over Kastel Field which is a 15 million barrel came of about 2,300 acres. But in the process of doing that, they drilled about – they drilled probably a dozen wells of which really six are productive and six are dry. And they did that in a private company standpoint. And I think if we look at the Göksu-5, it’s not a terribly different result from our other Göksus which were all productive than what they saw out there.

What we’re hoping to do is to turn the 3D into a model where we don’t drill the number of dry holes that we drilled in that field on the way that making the kind of wells we make. So our productive wells are above curve or above expectation. But then you take the dry hole to and its obviously well below expectation. In the case of Şelmo as I said, our expectation on a reserve basis – on a booked reserved basis, was zero. For our LSD, there was no reserves booked there. And internally, at the time we drilled that well, we believed that there was either a chance of this well making nothing but water or making a 1,000 barrels of oil a day.

Now we got a result that was in the middle. So I don’t know how to answer that. We’re very comfortable with the commerciality of it so that we can go ahead and continue drilling blocks there, but there is a difference between what we’re expected internally and what our external reserves are.

In general, with the exception of probably Göksu-5, our results have been at or above what our booked reserve estimations were.

Jonathan Fite – KMF Investments

It seems like the company has really turned the quarter and we look forward to ‘14 and ‘15 kind of seeing that curve explode up already. And I just want to leave you guys with the comment from the lessons of Henry Singleton, who Warren Buffett credits has been one of the best CEOs in history. Value investors probably best remember how Singleton exploited the market to his and shareholders advantage during the years depressed prices, he exploited the market and bought back large bags of shares, up to 90% of put. And during periods of high prices, he issued shares to make accretive acquisitions. It will be wonderful to see you guys exploit what may turn out to be a very short-term blip in the grand schema thing as far as kind of the depressed valuations in the marketplace. So I appreciate you guys continuing the strong operational progress and I just wanted to leave that comment with you guys to move along in the future.

Operator

Thank you. (Operator Instructions) Our next question is from Curtis Trimble of Global Hunter. You may begin.

Curtis Trimble – Global Hunter Securities

Thank you. Good morning everyone. Just looking maybe for a little pressure data or expectations on that two well that you’ve got going down where you get the 250 feet of sand.

Malone Mitchell

Well, there is only – to the best of our knowledge there is only a handful of wells. We’ve had a persistent seismic reflector that sets below or upper Bedinan is. So we drilled this well really on a structural feature and there is actually – there is a series of faults, and the faults track the oil in the Bedinan as well as in a number of other areas where you’re in this part of the field where at least the upper Bedinan level you’re not necessarily over pressure.

So we had agreed with our partners to drill this well down to deeper horizon, and the well is actually turnkey-ed down through that level. So the cost is being more to certain degree on this problem by the service company and by the E&P company. So we drilled through and saw exactly what we were expecting to see in the upper Bedinan, actually a thicker section close to 90 feet, for a lot of times at upper Bedinan sand is 50 or 60 feet.

Now we continued drilling down and as we cut the sand, we got into fairly high pressure. And the pressure required us to increase our mud weight into the 14 to 15 pound range in order to control kind of sand and pressure and what not there. We’d had some chemical trouble at top of the sand, drilled into it about 2.5 feet – 250 feet of sand and became stuck. We turned around and re-drilling that well to the top of the sand where we will case it and then we’ll log and put all of the upper section behind PUD [ph] and then we’ll re-drill that lower section with casing set at top of it.

Because there is only four, five wells and there is really literally no wells that we can tail within 30 or 40 miles of where we are that have penetrated the sand, we really think it’s kind of pre-mature to say exactly what if any outcome we will have out of it. What we do know is that it would be very over-pressured there which would be similar to what we see deeper in the basin when we get up into the Bahar area.

This deeper sand is still shallower than our upper Bedinan sands are in the Bahar field area. In that area we have pressure gradient that leaves us about 0.5, 0.6 on our pressure. So I think it’s fabulous that we found the sand. It’s pre-mature to indicate what we would see off of it. We do believe that if it’s productive, it will be gas and not oil.

Curtis Trimble – Global Hunter Securities

And that’s just based on the shales that you’ve seen thus far?

Malone Mitchell

Could you repeat that please?

Curtis Trimble – Global Hunter Securities

That’s just based on the shales that you’ve seen thus far?

Malone Mitchell

Yes.

Curtis Trimble – Global Hunter Securities

Very good. Looking to the Northwest and [indiscernible], can you talk a little bit about the variability across the target horizon as you are trying to turn horizontals from that Kayı-14 well that’s got that nice five million a day production rate?

Malone Mitchell

Ian?

Ian Delahunty

Yes, thanks. I’m sorry, but your question is can you talk about the…

Malone Mitchell

Kayı-14, yes.

Ian Delahunty

Right. That structure is actually quite extensive just to the north of Teggerdine [ph] area. And it’s a good question. We’ve actually got on the docket two or three wells to delineate that success kind of in the next three to six months. Again the Mez is – it’s an interesting layer. Generally around Thrace Basin, we deal with very low chlorides in the water and that’s essentially a petrophysicists sort of nightmare in terms of developing physical model.

I feel like we’ve done pretty good job coming up with an analysis that makes sense for this soapstone play. The good news about the soapstone play is that it is repeatable. Now, the Kayı-14 kind of blew past our expectations. The reentry costs around 400,000 bucks to reenter and frac. So while it does 60 million in couple of weeks, it’s great. So the question is what does that thing do on a horizontal basis and that’s where we’re going to go drilling.

Malone Mitchell

And I think one of the comments is the layers we see in there, they are is a lot of science and there are – they’re within the lenticular sand, it’s – to think about it in an analogous reservoir in the United States, it’s a lot more like – probably a lot more like the Mesaverde and Piceance Basin or something like that. So we’re going and laying a horizontal and we’re fracking sands that are in conjunction up and down. And one of the problems is kind of sand count and [indiscernible] kind of match, so we’re having to go to a certain degree off of well performance.

And the problems never been is the reservoir there or the sand there, or the shales there, the problem has been when you would be able to do your sand counts for what is their production profile of the well going to be. So saying there a successful completion, not a problem of getting a good model on what ultimate teams and production out of these wells is going to be is a little bit more challenging, because of the long analysis of the individual sands that we’re picking as we’re drilling horizontally because quite frankly some of the sands you see are not the sands that you’re producing from and vice-versa.

So I think we’re going to have to go based on a model actual production history and then determine what variability is versus exactly saying, well, in this area we know sands exactly this and sands exactly this in this area.

Curtis Trimble – Global Hunter Securities

As you look at the physical productive column on a vertical basis, what’s the number of fees that you’re looking at across those, is that decreasing?

Ian Delahunty

It varies. And as Malone, it is a lenticular nature of the sand, essentially mean that in some areas of the structure you find – and let’s say we deal – essentially we deal with four – we generally deal with four horizons within the two zones that we talk about with frequency on the calls. And the two zones that we talk about with frequency are the Mezardere and the Teslimko1y.

And in general, we’re talking about two sub-zones in each of those. Now the thickness, I suppose you’d define as the net thickness of those sub-zones varies depending on what structure you are dealing with and where you are on the structure. So it could be anywhere – if you added them altogether, it could be anywhere between 50 feet, all the way to 200 feet. And this is in the context of Thrace South.

Now as you go deeper into the basin, those tend to be a bit stretched out. But so yes, we’re looking at four zones, 60 to 200 feet and we’re trying to exploit all four.

Curtis Trimble – Global Hunter Securities

Good job. I appreciate it. Then just one last one. Looking at Bulgaria, can you kind of describe the sector target there in characteristics, detail you can provide on what you’re looking for specific figure?

Malone Mitchell

Well, what we can say that we sit in a straight line between the largest oil field and the largest gas field in the country. Now the horizons not necessarily stack right on top of each other. The first well we’re drilling is a gas and gas condensate objective. The largest gas field in the country averaged about 5 Bcf of oil and of course you have very high gas price and very high net revenue.

You get 97.5% of the income from sales and our gas price is going to average. The two products is close to $9 there. However you have wells within there. We think that the completion technique was fairly poor when that was done and we’re trying to completion technique that’s more standard in the United States for those type of reservoir, so you have wells individually within there that came in high as 20 million and made on 10 Bcf.

So oil field and the oil wells average came to over million barrels of oil. So that’s kind of the neighborhood you’re dealing with. We have – our productive trend there where we’re all along a bit fault system that we think will be productive is – it’s over 40 miles long, about five to 10 miles wide. And we see a lot of structures within that. So if we’re able to successfully get these wells completed in a commercial manner, and start working there, we think that that whole trend is probably a fairly large productive opportunity for us.

In some past presentations our predecessors numbers and everything have been put out there. When the country banned oil pumping, we had to write-off our reserves and write off the entire investment off of our books at the end of 2012, either ‘11 or ‘12. So from an investment carriage standpoint or reserve standpoint on our books, there is nothing there, because we had to write it all off and there is no mechanism to write that back on other than reserves subsequent to us establishing production.

So if you look across the whole thing, the potential is to drill 50 to a 100 wells and multiply the times of type of reserve numbers. Now we would also expect that for productive we’ll start drilling horizontal wells and we’ll see greater productivity than lot of the old vertical well. So it’s a large prospect, but it still has risk.

Curtis Trimble – Global Hunter Securities

Very good. I appreciate it.

Malone Mitchell

Thanks.

Operator

Thank you. I am showing no further questions at this time. I would like to turn the conference back over to Malone Mitchell for closing remarks.

Malone Mitchell

Well, thank you very much for attending the call this morning. And again, we’ll be seeing a number of you in the next couple of days and we’ve had a couple of very good sets of questions that were send in to us post the announcement yesterday and we’re trying to be responsive to those and get a number of new exhibits that reflects some of that. Ian will be presenting next week – week after next in London. So we’ll be posting a new presentation then and we’ll try to be a little bit more – we’ll try to be responsive to some of those supplementary questions that you had.

So at this point in time, we wish everyone of you a very good weekend, and thank you for your support for TransAtlantic. Goodbye.

Operator

Ladies and gentlemen, this concludes today’s conference. Thanks for your participations and have a wonderful day.

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