TransAtlantic Petroleum Initiation of coverage - Baystreet · TransAtlantic Petroleum is a ... most...

22 October 2013

TransAtlantic Petroleum is a research client of Edison Investment Research Limited

TransAtlantic Petroleum is in the midst of a US$130m, 38 well drilling programme, which applies North American oil and gas technology to Turkish and Bulgarian oil and gas basins. TransAtlantic has successfully tested both horizontal drilling and fracking methods on Turkish assets in the first half of the year, and we expect the current drilling programme to push on, potentially increasing production from a current 4.5mboe/d to over 9.0mboe/d by 2015.

Year end

Revenue (US$m)

PBT* (US$m)

EPS* (c)

DPS (c)

P/E (x)

Yield (%)

12/12 134.1 4.6 (0.5) 0.0 N/A N/A 12/13e 155.0 46.3 10.5 0.0 8.0 N/A 12/14e 213.8 93.6 21.0 0.0 4.0 N/A 12/15e 233.0 96.8 21.7 0.0 3.9 N/A Note: *PBT and EPS (fully diluted) are normalised, excluding intangible amortisation, exceptional items and share-based payments.

Unconventional programme to pick up speed in H213 TransAtlantic is pioneering North American drilling and fracking technology in Turkey, and applying unconventional methods to new shale plays, as well as to existing conventional assets. Moving forward with a US$130m drilling programme in 2013, TransAtlantic aims to drill 38 wells in this financial year. It has spudded 18 wells in the third quarter, and 27 wells year-to-date; our models point to a potential doubling in production volumes by 2015.

Making use of its Viking advantage North American horizontal drilling technology, fracture stimulation and 3D seismic acquisition are all supplied by Viking, an oilfield service company spun-off from TransAtlantic in June 2012, and partly owned by the Mitchell Group, which holds a 40% equity stake in TransAtlantic. Access to Viking is central to the company’s ambitions in Turkey and Bulgaria, and grants TransAtlantic a sustainable cost and technological advantage in the region.

Focus on production growth TransAtlantic has encountered difficulties in substantially increasing production over the past two years. In our view, delivering on the current drilling programme, and in turn pushing production sustainably above our forecast 5.5mboe/d year-end exit rate, could deliver new catalysts to the company’s market value.

Valuation: Production boost not being priced in Our valuation models find a core NAV of US$1.26 per share, with our conservative assumptions allowing for completion of the current US$130m drilling programme in Q114. With TransAtlantic trading at a 35% discount to our valuation, we are of the opinion that markets have yet to fully price-in the potential production boost and upside from the successful application of North American horizontal drilling and fracking techniques to Turkey’s oil and gas basins.

TransAtlantic Petroleum Initiation of coverage

Drilling activity picks up speed in H213

Price US$0.84 Market cap US$310m

Net debt (US$m) 30 June 2013 23.8

Shares in issue 368.9m

Free float 60%

Code TAT

Primary exchange NYSE MKT

Secondary exchange TSX

Share price performance

% 1m 3m 12m

Abs 5.1 18.3 (10.4)

Rel (local) 3.0 14.7 (26.4)

52-week high/low US$1.04 US$0.69

Business description

TransAtlantic Petroleum is engaged in the acquisition, exploration, and production of oil and gas assets. It uses North American horizontal drilling and fracking technology to enhance production. Its main interests lie in Turkey and Bulgaria.

Next events

Q313 results Early November 2013

Production levels as new wells come online

Q114

Completion of 3D seismic survey Q114

Analysts Xavier M Grunauer +1 (416) 533 8223

Ian McLelland +44 (0)20 3077 5756

[email protected]

Edison profile page

Oil & gas

http://www.edisoninvestmentresearch.com/research/company/transatlantic-petroleum

TransAtlantic Petroleum | 22 October 2013 2

Investment summary

Company description: Applying North American technology TransAtlantic is engaged in the production of oil and gas assets in Turkey and Bulgaria. It strategically focuses on the acquisition of assets with known production potential and the application of North American unconventional drilling and fracking technology. Oilfield services are supplied by Viking Services, spun-off from TransAtlantic in 2012 and partly owned by the Mitchell Group, which holds a 40% equity stake in TransAtlantic. Viking supplies seismic, drilling, fracture stimulation and workover services, granting TransAtlantic access to North American drilling rigs, and, in turn, a sustainable cost and technological advantage in the region. Currently producing 4.5mboe/d, TransAtlantic’s assets are focused in Turkey’s Thrace Basin and the south-east region. Absorbing most of the company’s US$130m programme are the Selmo and Molla oil fields.

Valuation: Potential doubling of production not fully priced in We expect production to increase from a current 4.5mboe/d (as of end of Q313) to over 7.0mboe/d by end 2014, and to total 9.5mboe/d in 2015. We model a core NAV of US$1.26 per share with our conservative DCF assumptions allowing for completion of the US$130m capex programme in Q114. With regards to drilling rigs available, the company points to three active rigs in south-eastern Turkey, and two active rigs in the Thrace Basin with one of these two rigs expected to be released and another rig added in Bulgaria in the fourth quarter, maintaining a five rig setup in the region going forward. Taking into account the logistics of moving rigs to and from Turkey to Bulgaria, our DCF models conservatively assume 10-15% of the proposed drilling and seismic programme will be completed in Q114. TransAtlantic is trading at a 35% discount to our DCF valuation; we find markets have yet to fully price-in the upside potential of successfully transferring the North American unconventional technology to Turkey’s oil and gas basins.

Financials: Capex programme might require additional debt We are forecasting an EBITDA of US$79m in 2013, which along with a 2012’s year-end cash position of US$15m, and a senior secured credit facility from Turkish bank Yapi Kredi, should more than cover 2013 modelled capex of US$123m. Further, our models point to a cash accumulation over our forecast period, which we expect will whittle down current net debt of US$23.8m (June 2013). The company’s 3D seismic and completion portion of the drilling campaign are both expected to carry on into 2014. Come 2014 we are forecasting US$111m of after tax operating cash flow, which, depending on the success of the unconventional drilling programme, is expected to be reinvested into the company’s drilling and fracking campaign.

Sensitivities: Drilling costs and commodity pricing We find that a 10% increase in drilling costs has little effect on our core NAV, which we forecast could drop from US$1.26 to US$1.23 per share; however, we do find a larger decline/upside in fair value with a change in realised oil and gas pricing, potentially increasing the core NAV to US$1.36/share should realised netbacks rise by 10% over a sustained period.

Catalyst: Production growth and potential JVs We see the key catalyst as production growth and increased cash generation. TransAtlantic’s search for a joint venture partner is also a potential catalyst, with its current search for a global oil and gas company to accelerate its exploration drilling and development programme deemed more likely to succeed once horizontal drilling and fracking are further de-risked in Turkey.


Company description: Applying the unconventional

TransAtlantic’s journey into Turkish assets began in 2008, with Mr N Malone Mitchell III, TransAtlantic’s chairman and CEO, (collectively with his affiliates, the “Mitchell Group”) acquiring approximately 40% of TransAtlantic’s shares, followed by the acquisition of Incremental Petroleum, which brought on board TransAtlantic’s most prolific assets: the Selmo oil field in south-east Turkey, and gas production from the Thrace Basin in the north-west. TransAtlantic shares began trading on the NYSE market under the symbol TAT at the end of 2009, and by October 2010 TransAtlantic had begun applying unconventional oil and gas methods to Turkish assets, and fracking gas wells in Turkey's Thrace Basin. To date, TransAtlantic has tested fracture stimulation techniques in Molla and Selmo in south-east Turkey and in the Mezardere formation in the Turkey’s north-west Thrace Basin. Results of these tests have confirmed stacked sandstone intervals within unconventional formations, the combination of which is expected to provide significant opportunities for multi-stage fracture stimulation and conventional vertical and horizontal drilling. Current plans entail stepping up from FY12 horizontal drilling success in Goksu-3H (Molla), and drilling up to a potential 19 horizontal and vertical wells by year-end 2013.

Oilfield services for TransAtlantic are supplied by Viking Services, an oilfield service company spun off from TransAtlantic in 2012, and partly owned by the Mitchell Group, which currently holds a 40% equity stake in TransAtlantic. Services and equipment supplied by Viking include seismic acquisition, horizontal drilling, fracture stimulation, well testing and workovers, granting TransAtlantic access to North American drilling rigs, and, in turn, a sustainable cost and technological advantage over its competitors in the region. It is worth noting that TransAtlantic currently makes up less than half of Viking’s business.

Exhibit 1: TransAtlantic’s asset base

Source: TransAtlantic

TransAtlantic is a Bermuda-based company headquartered in Dallas, Texas, with shares trading in both US and Canada. As of Q113, approximately 40% of TransAtlantic common shares were held by the Mitchell Group. As of 1 May 2013, TransAtlantic held interests in 39 exploration licences and 12 onshore production leases covering a total of 4.4 million gross acres (3.3 million net acres) in Turkey.


Producing assets

TransAtlantic’s oil and gas production came in as 4,505boe/d in 2012. Crude oil contributed 72% (3,244b/d) of the total sourced from south-eastern Turkey, led by the Selmo oil field, which contributed an impressive 68% of TransAtlantic’s total oil production. Other significant oil producers include Goksu, Bahar and Arpatepe, with all of these fields located near the Zagros fold and thrust belt, which is host to some of neighboring Iran and Iraq’s larger oil reservoirs.

Gas production contributed 28% (7.9mmcf/d) of TransAtlantic’s net oil and gas production, with most of the company’s natural gas production sourced from vertical wells within the Thrace Basin in Turkey’s north-western regions.

Selmo oil field, south-east Turkey (100% working interest) Located in close proximity to TransAtlantic’s Molla licence, Selmo oil field is currently TransAtlantic’s largest oil producer. Net production in FY12 came in as 813mbbl at an average rate of approximately 2,222b/d. Currently 50 producing wells, recent updates point to the completion of two horizontal wells in the month of October, both targeting the MSD zone at a depth of 5,200ft. Our models assume an additional three new horizontal wells in Q413, with these targeting the MSD and LSD zones, for a total of five horizontal wells in 2013. National oil company TPAO and Turkish refiner TUPRAS are the main purchasers of TransAtlantic’s crude production from this region.

Exhibit 2: Molla area and Selmo Field


Molla area, south-east Turkey (100% working interest) TransAtlantic’s Molla licences include the Molla, Goksu and Bahar oil fields. Seven horizontal wells and four vertical wells for a total of 11 are planned on the Molla licences in the second half of 2013, with an expected focus on the Mardin formation. In August 2013, Goksu-5H was drilled to the Mardin zone to a depth of 5,400ft. The company has five horizontal wells in south-east Turkey

TransAtlantic’sŞelmo Field

TransAtlantic’sBahar Field

TransAtlantic’sMolla Field

TransAtlantic’sMolla 3D Seismic

BatıRaman Field Largest oil field in

Turkey

TPAO DadaşDiscovery

Ciksor

Shell/TPAODadaş JV

Shell/TPAOSarıbuğday-1

TPAO Mardin Discovery

Bostanpinar

TransAtlantic’sÇatak-1

TransAtlantic’sMay 2013

Acquisition

TransAtlantic’sAmbarcık Well

TransAtlantic’sTepe Well

TransAtlantic’sGöksu Field

TransAtlantic’sArpatepe Field

Perenco’sKastel Field (EUR 15 MMbo)


awaiting completion with a coiled tubing unit (including Goksu-5H, Alibey-1, Oba-1 and two Selmo wells), with these potentially on-line in the fourth quarter of 2013 or early 2014.

Also of interest in the Molla area are the Hazro and Bedinan formations, as well as the Dadas shales, which can be seen sandwiched between the Hazro and Bedinan formations in Exhibit 3. The company has also tested the Bedinan sandstone; Bahar-2 was drilled in the summer of 2013, but was plugged back in the Hazro formation where it tested between 170-200b/d. TransAtlantic will complete the well in the second half of 2013.

Currently, TransAtlantic is drilling two exploration wells in the Molla area, with Tepe-1 targeting the Mardin and Bedinan formations, and Ambarcik -2 (50% WI) targeting the Bedinan formation in the Arpatepe licence (Arpatepe lies 30km south-east of Goksu, and has five producing wells; Aladdin Middle East is the operator). Net production from Arpatepe came in at 119b/d in 2012.

With regards to the 3D seismic programme, TransAtlantic continues to make progress on its 800km2 targeted area, with 365km2 shot to date and currently being processed in Dallas, Texas.

Exhibit 3: Molla area geological targets


Thrace Basin, north-west Turkey TransAtlantic’s natural gas production is concentrated in the Thrace Basin, located in the north-west of Turkey, near Istanbul. In FY12, net gas production from the Thrace Basin was 11.4mmcf/d, sourced primarily from the Tekirdag, Gazioglu and Nusratli gas fields, located in the southern end of the Thrace. TransAtlantic owns a 41.5% working interest in these three fields and as of H113 it had 52 producing wells on the Tekirdag and Gazioglu production leases and 85 producing wells on the Nusratli licence. Further to Tekirdag, Gazioglu and Nusratli, other contributors in the Thrace Basin include Edirne, Adatepe and Hayrabolu.

The Thrace Basin has multiple target horizons, all of a similar geological age, and grouped into sand, shale and silt sequences. TransAtlantic’s 2013 programme includes drilling 18 new wells in the Thrace basin (with 15 of these in H213), including 10 wells in Tekirdag and eight wells testing

Demonstrated horizontal success with Göksu-3H at 250 Bbl/d after 9months of production

Vertical discovery Bahar-1 IP ~600 Bbl/d post frac

Bahar-2 tested 170 Bbl/d

Potential resource play

Şelmo producing zone


the Hayrabolu structure area. It is worth noting that data gathered from the deep zones of Central Thrace have not been encouraging, with findings showing a temperature history that has likely been too hot to hold commercial gas reservoirs.

TransAtlantic is currently testing BTD-4H (41.5% WI), which will be its second horizontal well in the southern Thrace Basin and it targets the Teslimkoy formation. In the central Thrace Basin, Karanfiltepe-5 (41.5% WI) was drilled in Q313 and is currently being tested for hydrocarbons, while in the northern Thrace, six shallow vertical wells were drilled in the Edrine field, with five of the six expected to be completed in Q413.

Koynare concession, Bulgaria As of 31 December 2012, net proved reserves in Bulgaria came in as 9mbbl of oil and 234mmcf of natural gas. Bulgarian gas sales are derived from the Koynare concession, which was acquired through the purchase of Direct Bulgaria in February 2011. Koynare contains the Deventci-R2 appraisal well, which in late 2011, was suspended following the Bulgarian government’s ban of fracture stimulation. In August 2013, TransAtlantic entered into a farm-out agreement with Koynare Development (KDL), where KDL would fund 75% of TransAtlantic's initial US$40m work programme in exchange for a 50% interest in the Koynare and a 50% interest in the Stefanetz Concession. TransAtlantic is expecting to resume drilling Deventci-R2 (50% WI) in October 2013, which will be a directional well targeting the Dolni Lukovit zone at a depth of approximately 14,500ft. Future work in Bulgaria is currently being coordinated with the Ministry of Energy.

Production, proposed work programme and capex TransAtlantic’s plans entail spending US$130m in an aggressive drilling campaign, with approximately US$105m spent drilling 19 horizontal wells and 19 vertical wells (with 16 horizontal and 16 vertical of these scheduled in the second half of 2013). The company also plans to shoot 900km2 of 3D seismic, which began in late September. This is expected to be completed in early 2014 at a cost of US$25m. Improved resolution through 3D seismic is expected to be important for moving forward with the current horizontal drilling programme, with the company pointing to improved mapping required to navigate successfully through faults and stacked layers. TransAtlantic currently has five drilling rigs working in Turkey (two in Thrace and three in south-east Turkey).

Exhibit 4: Horizontal and vertical wells planned in 2013e Molla Area Selmo Field Thrace Basin Bulgaria Total H113 Horizontal 3 3 Vertical 3 3 H213 Horizontal 7 5 4 16 Vertical 4 11 1 16 Total 2013 Horizontal 10 5 4 0 19 Vertical 4 0 14 1 19 Grand total 14 5 18 1 38 Source: TransAtlantic

Following 2012’s initial success with horizontal well Goksu-3H on Molla, TransAtlantic anticipates drilling, in H213, 16 horizontal wells, including seven on Molla licences, which includes one on Gaziantep and five on Selmo. Depending on the success of these campaigns, TransAtlantic expects to accelerate drilling efforts in the region into 2014 and 2015. Our forecasts point to US$15m cash on hand plus US$101m cash flow from operations (after tax), which will be sufficient to fund a US$123m capex programme, along with its available credit facility. We expect that some of the US$130m drilling programme outlined for 2013 will be completed in Q114.


Beyond 2013-14 forecast drilling activities, we expect one of two scenarios: 1) the drilling programme finds successes, but more trial and error will be required to prove successful application of the North American technology; or 2) the current 3D seismic, horizontal drilling and fracking programme is sufficiently successful to roll-out, with JV and farm-in interests expected to help finance the expansion.

Proven and probable reserves summary As of year-end 2012, net proved oil reserves were reported as 9.5mmbbl of oil and 12.4mmcf of natural gas, for a total of 11.6mmboe of oil and gas. Net 2P reserves in 2012 were 21.6mmboe, with 81% of these oil reserves.

Exhibit 5: TransAtlantic reserves 2012 Proven Probable Proven & probable Possible Oil (mboe) 9,501 7,948 17,449 15,233 Natural gas (mmcf) 12,463 12,145 24,608 104,247 Total (mboe) 11,578 9,972 21,550 32,608 Source: TransAtlantic

Operational outlook TransAtlantic’s production average came in at 4,022boe/d in the quarter ended June 2013. Updates point to production of over 4,500boe/d at the end of September 2013. More than half of TransAtlantic’s production comes from Selmo, and ramp-up is expected from Molla, with these two assets located close to each other. We are expecting a production ramp-up in the second half of 2013 as new horizontal wells come on line, with our models pointing to an exit production rate above 5,400boe/d.

Exhibit 6: TransAtlantic’s oil and gas production

Source: TransAtlantic, Edison Investment Research estimates

Operational expansion leans heavily on TransAtlantic’s fracture stimulation programme, which to date has successfully been tested in Molla and Selmo in south-east Turkey and the Mezardere formation in the Thrace Basin. With regards to cost, fracking costs are close to 30% of the total cost of drilling and completing a well in the Mezardere, and approximately 15% of the total cost of re-entering and completing a well at Selmo, with these costs included in the drilling capex budget.

Exploration assets

As of 1 May 2013, TransAtlantic held interests in 39 exploration licences and 12 onshore production leases covering a total of 4.4 million gross acres (3.3 million net acres) in Turkey. The main non-core exploration assets in Turkey include:

-

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013e 2014e 2015e 2016e

boe/d

Oil (b/d) Gas (boe/d)


Bakuk in the south-east basin – The exploration licence covers approximately 61,000 gross acres, and the production lease covers approximately 34,000 gross acres. As of 1 May 2013, there was one producing well on the Bakuk production lease. Tiway is the operator, and TransAtlantic has a 50% working interest.

Idil in the south-east basin – The exploration licence covers approximately 123,000 gross acres. Plans are to drill one well in 2013. TransAtlantic is the operator, with a 50% working interest.

TransAtlantic also holds substantial exploration acreage in Turkey’s central Sivas Basin. In February 2012, the company entered into an agreement with Shell to co-fund the acquisition of 1,187km of 2D seismic data and approximately 8,553km of airborne gravity, gradiometry and magnetic data covering approximately 1.6 million acres. The agreement provided an option for Shell to farm into a 60% working interest in the exploration licences after it assessed the data. In April 2013 Shell notified TransAtlantic that it had elected not to exercise the option, greatly lowering the perceived value of these assets.

TransAtlantic’s exploration acreage outside of its core operating area is large, with the company successfully negotiating a joint venture in Bulgaria and looking for similar ventures in Turkey. This said, without proof of concept in its current horizontal drilling and fracking programme, we would expect most of the remote Turkish acreage to have large potential value, but little near-term value, as shown by Shell’s lack of interest to farm into the Sivas Basin.

Bulgaria exploration activities

Further to Deventci-R2, the Stefenetz Concession Area is estimated to contain over 300,000 prospective acres of Etropole shale formation at a depth of approximately 12,500 feet. In September 2011, TransAtlantic and LNG Energy Ltd. entered into an agreement to drill Peshtene-R11 exploration well on Stefenetz to test the Etropole formation. TransAtlantic suspended completion of the Peshtene-R11 well following enactment of the Bulgarian government’s January 2012 legislation banning fracking stimulation.

Turkey and Bulgaria in focus

Oil and gas production in Turkey is subject to a 12.5% royalty rate, and the corporate income tax rate is 20%. Revenues from the Selmo oil field are subject to an additional 10% royalty, which can be offset against exploration expense incurred in Turkey. TransAtlantic oil sales are based on Brent pricing, and Turkish domestic gas prices. During 2012, TransAtlantic averaged prices of US$102.55/bbl for oil production and US$8.68/mcf for gas production.

Bulgaria beyond its ban on fracking

Bulgaria’s royalty ranges from 2.5% to 30%, based on an “R factor”, which is calculated by dividing the cumulative revenues by the total costs incurred for that production concession. The corporate income tax rate in Bulgaria is 10% and oil is priced at market, while natural gas is tied to a bundle pricing based in part on the import price and in part on the domestic price.

Management

TransAtlantic is led and 40% owned by the Mitchell Group whose day-to-day responsibilities include strategic planning and financial oversight. Mr Malone Mitchell brings over 30 years of industry experience, with management experience in all aspects of oil and gas exploration, development, production and services. He founded Riata Energy (SandRidge Energy) in 1985 and built it up to 1tcf of proved reserves.


Ian Delahunty has served as president since early 2013. His primary responsibilities include operational and strategic management focusing on the growth, deployment and profitability of assets. Based in Istanbul until 2012, he provided support in several engineering roles. Mr Delahunty began his career with Schlumberger and held the position of operations engineer at Occidental Petroleum. In this capacity he worked with both high permeability and tight reservoir systems in various pilot EOR projects and stimulation plays, respectively.

Wil Saqueton has served as vice president and chief financial officer for TransAtlantic Petroleum since 2011. He began his career at Price Waterhouse LP, providing audit and tax services.

Jeff Mecom has served as vice president for TransAtlantic since 2007 and corporate secretary since 2006. His responsibilities include securities compliance and corporate governance.

Sensitivities

Our sensitivity analysis takes into account a 10% change to the cost to the drilling programme, as well as a 10% change to realised oil and gas pricing. We find that an increase in the per well drilling costs has little effect, with our core NAV dropping from US$1.26 to US$1.23 per share for a 10% increase in costs; however, we do find a bigger drop in profitability with the decline of oil and gas pricing, reducing core NAV to US$1.17/share should pricing drop by 10% over a prolonged period, and conversely, increase to US$1.36/share should pricing come in 10% above our forecasts.

Exhibit 7: Sensitivities to commodity pricing and costs per well (core NAV, US$/share) Cost per well change (%) Change in oil and gas realised pricing -10% 0% 10% -10% 1.19 1.29 1.39 0% 1.17 1.26 1.36 10% 1.14 1.23 1.33 Source: Company data, Edison Investment Research

With regards to drilling time, we are expecting 30-40 days to be a likely average for the horizontal wells, with TransAtlantic currently making use of four drilling rigs in Turkey (one in Thrace and three in south-east Turkey). We find south-east Turkey’s 12 horizontal wells scheduled for H213 could take 480 drilling days, or 160 calendar days making use of the three available rigs, 100% of the time, which leads us to conclude that some slippage in the drilling programme is possible. In our models we assume 10-15% of the drilling and seismic programmes are completed in Q114.

Valuation

Basis for the valuation In line with our existing valuation metrics for E&P companies, we value TransAtlantic on a DCF-derived net asset value (NAV) model. We assume our standard price deck (US$80/bbl real, inflated at 2.5% after a fade from near-term pricing expectations) with minor amendments for local markets.

Core to our valuation are net 2P reserves (stated after Turkey royalties) of 21.6mmboe, the basic shares outstanding count of 369m, as well as end of 2012 net debt of US$18.0m, which we calculate based on 2012 cash of US$14.8m less long- and short-term debt of US$32.8m. Our valuation also uses a 12% weighted average cost of capital (WACC), which we base on the company’s current 9.5% cost of debt, Turkey’s long-term rates of 4.5%, an equity risk premium of 6% and a target leverage of 20%.


Results of our valuation Our models find a core NAV of US$1.26 per share. Our assumptions of the current drilling programme realise a quick ramp-up of production over the next two reported years, with the 2013 drilling programme completing in H114. Not surprisingly, the Selmo, Molla and Thrace assets are the biggest contributors to the company’s NAV. With regard to risking of production, we take the view that production from the main producing assets are not at risk.

Exhibit 8: TransAtlantic NAV summary table Asset Country Diluted WI

% GCoS

% Recoverable reserves NPV/boe Net risked

value Value per share (US$)

Gross Net Risked Unrisked mmboe mmboe US$/boe US$m /share /share

Production assets Selmo Turkey 100% 100% 7.2 7.2 33.2 238 0.66 0.66 Tekirdag Turkey 41.5% 100% 1.9 1.9 3.5 6 0.02 0.02 Molla Turkey 100% 100% 6.0 6.0 28.0 167 0.47 0.47 Other oil Turkey 100% 100% 2.2 2.2 26.1 56 0.16 0.16 Other gas Turkey 50% 100% 5.3 5.3 14.7 77 0.22 0.22 Bulgaria Bulgaria 50% 100% 0.7 0.7 7.0 5 0.01 0.01 Net (debt) cash (as of YE12) 100% 100% 0.0 0.0 - (18) (0.05) (0.05) G&A 100% 100% 0.0 0.0 - (80) (0.22) (0.22) Core NAV 451 1.26 1.26 Source: Company data, Edison Investment Research

With regards to the exploration portfolio, we find TransAtlantic exploration acreage (ie outside of its current producing blocks) to be large and remote, with failed attempts to entice exploration joint ventures in Turkey. We are of the opinion that without proof of concept in its current horizontal drilling and fracking programme, most of this exploration acreage might have large potential value, but little near-term value, as shown by Shell’s lack of interest to farm into the Sivas Basin. In turn, we have chosen not to assign a value to the company’s exploration portfolio, which still requires sizeable investment and the inclusion of JV partners to bring these to a drilling stage.

Financials

On 13 June 2012, TransAtlantic completed the sale of its Viking oilfield services unit, for US$168mm, comprising US$155.7m in cash and a US$11.5m promissory note. The cash portion of the purchase price was incorporated into working capital and towards paying down debt, with net debt declining from US$63m in FY11 to US$18m in FY12.

We note that while Viking is key to TransAtlantic’s investment thesis, a need to reduce TransAtlantic’s debt costs outweighed the need for TransAtlantic shareholders to fully own and control the drilling and service business. Given that the Mitchell Group is a major shareholder in both Viking and TransAtlantic, and will share the same interest, we do not see a need for the vertical integration of these two companies.

Exhibit 9: Operational and financial summary 2011 2012 2013e 2014e 2015e Production (boe/d) 4,567 4,534 4,645 7,074 9,542 EBITDA (US$’000s) (8,156) 38,720 78,849 126,967 135,480 EBITDA (US$/bbl) N/A 23.4 46.5 49.2 38.9 Capex (US$’000s) (154,200)* (81,800)* (122,956) (84,500) (82,000) LT & ST debt (US$’000s) (78,000) (32,766) (40,886) (40,886) (40,886) Cash on hand (US$’000s) 15,116 14,768 1,442 27,644 64,727 Source: TransAtlantic, Edison Investment Research estimates. Note: *As per company 10-K discussion.

Over the forecast period, our models point to a cash accumulation, which we believe will be reinvested into the company’s capex programme and potentially contribute to refinancing and/or


purchase of current outstanding debt. We do not assume a near-term dividend payment, which could be premature at this stage of operations. This said, projected cash on hand in our forecasts to FY16 is more than adequate to repay the long-term debt and future dividends are not ruled out.

Exhibit 10: Financial summary US$000's 2011 2012 2013e 2014e 2015e Dec PROFIT & LOSS Revenue 124,162 134,113 155,002 213,796 232,996 Cost of Sales (90,969) (62,837) (53,124) (58,651) (69,191) Gross Profit 33,193 71,276 101,879 155,145 163,805 EBITDA (8,156) 38,720 78,849 126,967 135,480 Operating Profit (before amort. and except.) (47,164) 10,505 49,017 97,317 98,670 Intangible Amortisation 0 0 0 0 0 Exceptionals (20,399) (4,465) 472 0 0 Other 0 0 0 0 0 Operating Profit (67,563) 6,040 49,489 97,317 98,670 Net Interest (12,576) (5,922) (2,766) (3,755) (1,878) Profit Before Tax (norm) (59,740) 4,583 46,251 93,562 96,792 Profit Before Tax (FRS 3) (80,139) 118 46,723 93,562 96,792 Tax 2,565 (6,491) (6,275) (14,034) (14,519) Profit After Tax (norm) (57,175) (1,908) 39,976 79,528 82,274 Profit After Tax (FRS 3) (77,574) (6,373) 40,448 79,528 82,274 Average Number of Shares Outstanding (m) 356.0 367.4 368.9 368.9 368.9 EPS - normalised (US$) (0.161) (0.005) 0.108 0.216 0.223 EPS - normalised and fully diluted (US$) (0.161) (0.005) 0.105 0.210 0.217 EPS - Reported (US$) (0.218) (0.017) 0.110 0.110 0.223 Dividend per share (US$) 0.000 0.000 0.000 0.000 0.000 Gross Margin (%) 26.7 53.1 65.7 72.6 70.3 EBITDA Margin (%) -6.6 28.9 50.9 59.4 58.1 Operating Margin (before GW and except.) (%) -38.0 7.8 31.6 45.5 42.3 BALANCE SHEET Fixed Assets 248,616 284,868 437,450 551,600 670,410 Intangible Assets 0 0 0 0 0 Tangible Assets 235,429 256,152 408,734 522,884 641,694 Investments 13,187 28,716 28,716 28,716 28,716 Current Assets 200,186 73,390 55,906 81,784 118,867 Stocks 127,168 1,619 1,619 1,295 1,295 Debtors 51,636 34,158 30,000 30,000 30,000 Cash 15,116 14,768 1,442 27,644 64,727 Other 6,266 22,845 22,845 22,845 22,845 Current Liabilities (164,625) (71,612) (130,208) (129,008) (129,008) Creditors (164,625) (71,612) (129,088) (127,888) (127,888) Short term borrowings 0 0 (1,120) (1,120) (1,120) Long Term Liabilities (112,904) (72,819) (78,915) (78,915) (78,915) Long term borrowings (78,000) (32,766) (39,766) (39,766) (39,766) Other long term liabilities (34,904) (40,053) (39,149) (39,149) (39,149) Net Assets 171,273 213,827 284,233 425,461 581,355 CASH FLOW Operating Cash Flow 48,442 58,461 107,785 124,736 133,602 Net Interest 0 0 0 0 0 Tax 2,565 (6,491) (6,275) (14,034) (14,519) Capex (66,229) (52,535) (122,956) (84,500) (82,000) Acquisitions/disposals 747 0 0 0 0 Equity Financing 0 0 0 0 0 Other cash flow 512 267 0 0 0 Net Cash Flow (13,963) (298) (21,446) 26,202 37,084 Opening net (debt)/cash (34,676) (62,884) (17,998) (39,444) (13,242) HP finance leases initiated 0 0 0 0 0 Other (83,597) 45,184 0 0 0 Closing net (debt)/cash (62,884) (17,998) (39,444) (13,242) 23,841 Source: Edison Investment Research, TransAtlantic Petroleum accounts. Note: On 13 June 2012 TransAtlantic sold its Viking oilfield services unit, for US$168m, comprising US$155.7m in cash and a US$11.5m promissory note. In the exhibit above, for 2012 we consequently show the data on a continuing operations basis.


Contact details Revenue by geography TransAtlantic Petroleum Ltd. 16803 Dallas Parkway P.O. Box 246 Addison, TX 75001-0246 +1 (214) 220-4323 www.transatlanticpetroleum.com

CAGR metrics Profitability metrics Balance sheet metrics Sensitivities evaluation EPS 11-15e N/A% EPS Y13-15e 30.2.% EBITDA 11-15e N/A% EBITDA 13-15e 25.3% Sales 11-15e 17.0% Sales 13-15e 22.6%

ROCE 2014e 35.8% Avg ROCE 11-15e N/A ROE 2014e 21.3% Gross margin 2014e 72.6% Operating margin 2014e 51.6% Gr mgn / Op mgn YY 1.4x

Gearing 2014e N/A Interest cover 2014e N/A CA/CL 2014e N/A Stock days 2014e 2.2 Debtor days 2014e 54.6 Creditor days 2014e N/A

Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices

Management team Chairman and CEO: N Malone Mitchell III President: Ian Delahunty TransAtlantic is led by Malone Mitchell (chairman and CEO). His day-to-day responsibilities include strategic planning and financial oversight. Mr Mitchell brings over 30 years of industry experience with management experience in all aspects of oil and gas exploration, development, production and services.

Ian Delahunty has been president since early 2013. His primary responsibilities include operational and strategic management focusing on the growth, deployment and profitability of assets.

VP and CEO: Wil Saqueton VP and Company Secretary: Jeff Mecom Wil Saqueton has been vice president and chief financial officer since 2011. He began his career at Price Waterhouse LP, providing audit and tax services.

Jeff Mecom has been vice president for TransAtlantic Petroleum since 2007 and corporate secretary since 2006. His primary responsibilities include overseeing securities regulation compliance, corporate governance and material agreements.

Principal shareholders (%) Mitchell Group 40.0 Schroder Investments 8.8 Nokomis Capital 3.7 Hollow Brook 0.9

Companies named in this report Tupras (TPRD:LI); Shell (RDSA); LNG Energy (LNG:CN); Yapi Kredi (YKBNK:TI)

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