Zappa Resources (tsx.v:zpa) Rides Coat Tails to Potential Permian Reef Oil Discovery

By Katherine Young
April 15, 2007

Zappa Resources (TSX.V:ZPA) is a junior resource company with projects in Canada, the U.S. and now, Tunisia. Early in March 2007, Zappa signed a letter of intent to enter into a “farm-in participation agreement” with Pennine Petroleum on the Jorf concession petroleum property in Tunisia. The opportunity, says Albert Gerry, President and CEO, has “large elephant” potential that has caught the enthusiasm of the investing public and propelled Zappa’s stock, which was at less than ten cents a share in February, up to twenty-two cents a share today.

The deal involved Zappa paying US $250,000 upfront to pay for its share of a seismic program, while paying for 15% of drilling and developing costs. In return, Zappa receives 10% working interest in the first identified drillable structure on the Jorf permit, and has the option of farming in on any subsequent drillable structures under the same terms. The permit, which includes 989,267 acres in south central Tunisia, is held by Cygam Energy Inc. of Alberta under its subsidiary company, Rigo Oil Company Ltd., which is the operator out of Tunisia.

Relying on analysis from Chapman Petroleum Engineers, Gerry explains “why this particular oil target is so exciting is the Permian Reef. There are only two other Permian Reefs that are known in the world and both of them are now producing oil and have a great, great reserve. They’re both in the billion barrel reserve category. So, this may be another one. The reef itself is about 1000m thick in places.” He is referring to reefs in the West Texan Basin and the northern Caspian fields in Khazakhstan, both of which represent very large oil reserves.

Getting into the new Tunisian oil exploration market was a boon for Zappa. “What we do is we ride the coattails of an experienced company that’s already been there. Through an introduction by Pennine, we partner with Cygam and their Tunisian operating company Rigo. It saves a lot of time and money to have these relationships and we pay a premium of 15% to earn 10%. Through this partnership Zappa can operate in an environment with excellent potential like Tunisia, which would otherwise be out of range for a junior company.”

According to Gerry, who believes in capitalizing on sound economic opportunities, Tunisia is home to substantial known oil and gas reserves, and perfectly suits Zappa’s exploration philosophy. “Tunisia is relatively hot in oil and gas market exploration field. It’s gone from an insignificant amount of [known] oil and gas to a significant amount, in a very short period of time because the country was overlooked. [In the past] there were known oil fields in Algeria and Libya on either side [of Tunisia], and there was incentive to explore in those countries. The Tunisian Ministry of oil and gas exploration (ETAP) developed a strategic plan and the country has attracted many foreign oil companies.” According to Gerry, the Tunisian government is actively looking to partner with successful oil companies who find oil in their country.

Also important is the pipeline that already crosses the Jorf permit, so if Zappa does hit the operator can tap into the pipeline to bring their oil and gas to market. The existing pipelines have the capacity to transport oil to tankers or utilize the TransMed to deliver into the European market.

Gerry says that the Tunisia property is possibly an enormous reserve worth a large amount of money, but costs are the same to develop as a smaller reserve. Zappa is confident that they have the expertise and connections to raise enough money to stay put in Tunisia if necessary, so they might as well put their money toward something big. Gerry explains, “You can spend the same amount of money on a reserve that produces a hundred barrels a day and has a total reserve of two or three million barrels. The Jorf permit could have half a billion barrels or more.” Gerry hopes that this is the kind of opportunity that creates a company overnight. He says Zappa will know more by the end of July once they’ve started drilling. With that kind of potential we can see why he talks in terms of elephants.