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Should Tunisia Now Be on Energy Investors' Watch List?

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To help us look at the developing situation in the region, we spoke with oil industry veteran John Nelson.

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Until recently Tunisia was considered to be a minor league and relatively underexplored venue in Africa's rapidly expanding oil and gas scene. This situation has quickly changed with new bid rounds and forced relinquishments creating an opportunity for new companies to come in.

Major American E&P companies like Shell (NYSE:RDS.A) have jumped at the opportunity to acquire ground that had been dominated for decades with little to no work conducted, mostly by European State oil and gas companies in this former French protectorate. For the first time major spending has been committed to test Tunisian basins which are arguably equally prolific as those in neighboring environments with more work performed, such as Libya.

Tunisia is now in focus for investors because exploration is increasing within the producing Pelagian Basin, which leads us to ask the following questions:

Should Tunisia now be on energy investors watch list?

Is Shell just the start of "big oil" making inroads into the country? And which are the plays that people should be watching?

To help us look at the developing situation in the region we managed to speak with oil industry veteran John Nelson.

John Nelson is CEO of Canadian-listed Africa Hydrocarbons Inc. (CVE:NFK). A veteran geologist, Nelson spent much of his career in East and Central Africa-much of it for Mobil Oil-studying regional and mapping rift basins at a time when no one else was shopping around in Africa's interior. Over his 27 years in the industry, Nelson has also had junior E&P experience, recently serving as CEO for Lion Energy Corp., which was bought out by Africa Oil Corp (CVE:AOI) in 2011 as a way for AOI to gain access to their impressive Kenyan land package that John had put together.

Africa Hydrocarbons Inc has a 47.5% interest in the Bouhajla Block, located onshore Tunisia and surrounded by major Shell Oil.

James Stafford: Is Tunisia right now a venue for the juniors or majors, and what makes Tunisia a good venue for small companies?

John Nelson: There is a good cross-section of different sized oil companies exploring and operating in Tunisia. Some of the majors are present such as ENI (NYSE:E), Total (NYSE:TOT), CNOOC (NYSE:CEO) and Shell; however, most of the activity is with the smaller companies.

Junior companies can be very successful on projects that may not meet the economic threshold of the majors, but can propel juniors quickly to mid-tier producers. This makes Tunisia a good place for smaller companies to explore.

The basins in Tunisia are well established and understood. Services for seismic and drilling are available. There is a capable work force and French rule of law. Infrastructure in the way of roads and pipelines can be found across the country. Fiscal terms are good and the government is stable and reasonable to deal with. There are a number of smaller Canadian companies already there.

James Stafford: Can you tell us a bit about Tunisia's potential. What is the biggest field and what are the best exploration prospects?

John Nelson: There is a lot of geological diversity in Tunisia which creates a number of different play types to explore for. The biggest onshore oil field is the Sidi el Kilani field in north central Tunisia. This field has produced over 50 Million barrels of light sweet crude from a small number of wells. In fact it is the similarities in Africa Hydrocarbon's targets to Sidi el Kilani that got me interested enough in the "home run" size of the first drillable target, to decide to come and run this company.

James Stafford: How does the geology compare to the East Africa and the East Africa Rift System?

John Nelson: The geology of Tunisia is not exactly like that of the great Tertiary rift system of east Africa. There are of course some geological similarities on a smaller scale where extension has caused the formation of horst and graben structures in some areas of Tunisia. In general what we are looking for is actually arguably more straight forward.

James Stafford: What's the business atmosphere right now in Tunisia?

John Nelson: Business as usual. We have not seen any significant risks or changes in business practices since we have been involved there. In terms of North Africa, Tunisia is probably at the top as a jurisdiction in which to do business, and stability of the politics, etc. The economy seems to be doing well. There is construction going on in many of the cities. The country has not suffered at the same level from debt and poor fiscal mangement like some of the eurozone countries on the northern Mediterranean side. The country, like many countries these days, has unemployment issues especially with the younger generation.

James Stafford: So if Big Oil is not looking in Tunisia, how does that help NFK?

John Nelson: It is hard to compete against majors when it comes to acquiring sizeable acreage and making commitments. It allows smaller companies to cost effectively get positioned and undertake exploration initiatives. However, if a significant discovery is made then Big Oil may appear back on the scene to partner with or acquire small companies like NFK. Shell Oil surrounds our Block now but we were there first and were able to position ourselves with over 130,000 acres.
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