The Ntorya Gas Condensate Discovery, Tanzania. Monetization Potential for Solo Oil and AMINEX Quicker than the market might think

The Ntorya Gas Condensate Discovery, Tanzania. 

Monetization Potential for Solo Oil and AMINEX Quicker than the market might think

On the 27^th March, Solo Oil (LSE:SOLO) announced that the gathering of seismic data on the Ntorya gas-condensate discovery was underway and that a program of up to 250 kilometres of full-fold 2D seismic was in progress on the Ntorya Appraisal Licence tied to the Likonde-1 well in the adjacent Lindi Licence of the Ruvuma Petroleum Sharing Contract ("PSC"). Naturally the purpose of this seismic work is to determine how best to optimize the location of where future wells will be sunk.

At this stage it’s important to put into context just how swiftly production can actually start on a technically advanced and well-understood onshore gas condensate field, which is what Ntorya is fast becoming.

For those not familiar with development time lines, many readers of this article might be very surprised to learn of a number of examples where the timeline from discovery well to production is actually quicker than one might think.

That is why I am Reporting that Solo Oil and AMINEX are Massively Under-Valued

It is this speed of development of an onshore gas condensate field that forms the basis for my assessment and why the speed of value release from Ntorya and its potential to be monetized, is looking to be far quicker than the markets are currently giving Solo Oil (LSE:SOLO) and AMINEX  (LSE:AEX) credit for.

Take for instance Russia, where there are plenty of onshore gas condensate fields and where its fair to say that climatic conditions particularly in the Arctic regions are a little more challenging to gas field infrastructure development than sunny Tanzania. For example, the Yuzhno-Russkoye oil and gas field is under development by Gazprom, BASF and E.ON Ruhrgas, is an oil and gas condensate field located in the harsh Krasnoselkupsky District of the Yamal-Nenets Autonomous Okrug region of north west Russia. Construction work on the Yuzhno-Russkoye field infrastructure started in January 2006, by September 2007, the field was connected to Gazprom's Unified Gas Supply System (UGSS), the world's largest gas transmission system and commercial operation of the field started in October 2007.

“By 2012, Yuzhno-Russkoye produced its hundred billionth cubic metre of gas”

Whilst there is no disguising the fact that considerable work had gone on in the 1990’s on the Yuzhno-Russkoye field to determine its commercial viability, once the location of wells and a development plan for the field had been decided upon, construction to production was actually very quick. Once you know where to sink your wells you can get into production, all be it not full scale production, in a year, even in Russia.

Another example of how fast gas condensate wells can be brought into production can be seen in the case of OMV, Austria’s oil and gas production and exploration company. Back in 2011 OMV Petrom, OMV’s Romanian oil and gas subsidiary announced that it had started test-work exploration on Totea the largest onshore gas condensate well in Romania.

The well was put in production after only 100 days from the discovery by using an early production facility that allowed the operator to start production and generate revenue whilst still working on the wider field and exploration development work. It was reported that daily production initially amounted to approximately 430,000 cubic meters of gas and 58 tonnes of condensate.

Back to Russia

International oil and gas company TOTAL SA and Novatek, Russia’s second largest gas producer, is currently putting their most sophisticated expertise and technology to work at the Termokarstovoye field, an oil and gas condensate project located in the isolated tundra region in the Yamal-Nenets district, which for two-thirds of the year is actually inaccessible. 

Development of the very deep multilayer gas condensate reservoirs began at the end of 2011 Drilling is underway on 22 wells coinciding with the construction of a 180-km-long pipeline built over the permafrost designed to carry the gas from Terneftegas’ treatment plant (the company that holds the license to the gas condensate field) to Novatek’s gas pipeline. Production is scheduled to begin in 2015 (Four years from the commencement of drilling) with capacity of 65,000 barrels of oil equivalent a day, broken down into 6 million m³ of gas and 25,000 boe/d of liquid (LPG and condensates).

Closer to Home: Mozambique

The development of Mozambique’s hydrocarbon economy, serves as a useful reference point for Tanzania. One example is the Pande and Temane onshore gas fields, discovered in 1961 and 1967 respectively by US Major Gulf Oil. Civil war and an absence in the appetite for gas left both discoveries under developed until 2003 when Sasol Petroleum International began intensive exploration and where development of Temane commenced in January 2004 and Pande started in 2008. Commercial production of gas began in 2004 from Pande and 2010 from Temane, essentially made possible by the financing of an 865 km pipeline and other infrastructure, provided by the World Bank, EIB and other lending institutions, enabled Sasol to transport natural gas from Mozambique to South Africa. A situation that mirrors very closely what is happening in Tanzania with their very own Chinese built and financed gas pipeline.

Summary:

Both Solo Oil and AMINEX are on the cusp of something special. The gathering and analysis of infill 2D seismic data on Ntorya will be complete this autumn and the next stage of development would be the drilling of further wells. Ntorya is an advanced discovery (Ntorya-1 was spudded on the 22 December 2011) that is developing at a pace that perfectly coincides with the development of the Mtwara to Dar es Salaam gas pipeline currently being constructed by China National Petroleum Corporation (CNPC). We understand from local news sources that CNPC successfully laid and connected the subsea pipe on the 15^th April. The Mnazi Bay to Dar es Salaam Gas 532 km Pipeline from Mnazi Bay in the Mtwara region and Songo Songo in the Kilwa District, to Dar es Salaam, consists of a 36 inch mainline and a 24 inch spur line. Upon completion, the pipeline is expected to have a capacity of 784 MMcf/d and will pass just 20 kms from Ntorya and is expected to be complete in January 2015. We understand that the construction process is going according to plan and with the subsea connection now in place, completing the onshore pipeline construction should now go according to plan, with no threat of being held back by the more technically challenging sub sea construction.

These developments provide investors in both Solo and AMINEX a series of value catalysts that will be game changing for both companies. Not only would it be possible for Ntorya to be monetized quickly, the securing of value adding 2D seismic data results later this year coupled with the start of a potential drill campaign at Ntorya would see Solo, AMINEX and Ntorya become attractive investment targets.

Solo Oil closed Friday 2/04/14 at just 0.016p and AMINEX closed 0.075p both look incredibly cheap given the year ahead.

www.soloil.co.uk

www.aminex-plc.com

Author

André T Morrall

Brand:Petrogas

RUVUMA PSA

The Ruvuma PSA originally covers 12,360 square kilometres in the extreme south-east of Tanzania of which roughly 80% is onshore and 20% offshore when first granted in October 2005. Within the PSA are two specific, adjoining licence areas, known as Lindi and Mtwara. Following the first exploration period and an extension about 75% of the area was relinquished and the remaining PSA covers 3,447 square kilometres. Prior to the award of the current PSA 1153 kilometres of 2D seismic had been acquired in the area of the PSC between 1981 and 2002. No wells had been drilling within the boundaries of the PSA, but a well at Lukeledi-1 to the north had been drilled by Texaco in 1992 and the Mnazi Bay-1 well to the southeast had been drilled by Agip in 1982. Following award of the PSA Ndovu Resources, a subsidiary of Aminex, acquired 370 kilometres of offshore seismic in the Lindi Block and a further 430 kilometres of 2D seismic onshore in the Lindi and Mtwara Blocks.

The first well under the Ruvuma PSA was drilled in 2010 on the Likonde prospect. Likonde-1 is located in the Lindi Block and encountered thick sands with hydrocarbon shows. The well was drilled to a total depth of 3,647 metres and results of drilling, wireline logs and side-wall coring showed that the well intersected two sandstone intervals of over 250 metres (820 feet) combined thickness with evidence of residual oil and gas. Drilling had to be terminated in the deepest objectives due to the high rate influx of gas.

Based on the encouraging results of the Likonde-1 well the available 2D seismic was reprocessed and reinterpreted to select the location for a second exploration well, within the Mtwara Block. The chosen location, Ntorya-1, was intended to target the updip extent of the sands encountered in the Likonde-1 well.

On the 6 October 2011, prior to the drilling of Ntoya-1, Solo announced that it has increased its stake in the Ruvuma Basin PSA from 12.5% to 18.75% by assuming the additional obligations associated with the additional interest relinquished by Tullow Oil who reduced their over holding from 50 to 25%.

Ntorya-1 was spudded on the 22 December 2011 and intersected a gross 25 metre section of Mid-Cretaceous sandstones with gas. The upper 3.5 metres of the gas bearing zone were tested at a maximum rate of 20.1 mmscfd with 139 barrels oil per day of 53 deg API condensate through a 1” choke. The flow rate was considered to be of potential commercial interest and well has been suspended.

After intersecting the primary target, but prior to deepening to the eventual discovery level in the Ntorya-1 well Tullow Oil elected to transfer their remaining 25% interest to the partners, Ndovu and Solo in proportion to their existing interests in return for the assignees accepting future obligations in the second exploration period. As a result Solo increased its interest in the Ntorya-1 discovery and the Ruvuma Basin PSA to 25%.

A resource report has been prepared by ISIS Petroleum Consultants that attributes 5.75 tcf of potential gas-in-place resources to the Ruvuma PSA. ISIS calculates that Ntorya holds mean 1.17 tcf of unrisked gas in place of which 178 bcf are considered discovered. The Ntorya-1 discovery is now the subject to an application for an appraisal extension to the licence to carry out a two-year program of additional infill seismic and a further well. Elsewhere in the PSA an additional seismic program and two additional exploration wells are planned to follow-up the success of the first two wells. It is anticipated that a farm-in partner will be found to take up to a 50% interest in return for a substantial financial contribution to the remaining work program.