Wentworth’s Gas Payment Security Agreement Gives Tanzania’s Gas Sector Players a Huge Boost

Players in Tanzania’s gas market that are relying on sales of gas to domestic customers through the Mnazi Bay-Dar es Salaam gas pipeline, received a huge boost last week when Wentworth (OSE: WRL) and AIM (AIM: WRL) announced they has secured a payment security agreement with Tanzania’s Petroleum Development Corporation (TPDC) enabling the company to make its first gas delivery from its Mnazi Bay gas project, a joint venture production sharing contract which also includes Maurel and Prom and TPDC.

As I have reported on in the past, the difficulty with securing gas sales agreements in Africa for sales of gas where the end customer is a domestic one, has always been the securing of a suitable financial guarantee. African utilities in particular have challenges when it comes to credit control. Let’s put it this way, it’s very difficult to collect cash from some customers.

On September 12, 2014, Wentworth and the Mnazi Bay partners signed a gas sales agreement with the Tanzanian government to deliver up to 130mmcf/day of natural gas from the Mnazi Bay concession, however, the agreement still required a financial guarantee.

Under the terms of the gas sales agreement, the sale price of the gas has been set at US$3.00 per million BTU, or around US$3.07 per thousand cubic feet, rising in line with the US CPI industrial index. The Partners have agreed payment security terms with TPDC, the buyer of the gas, and various other parties. Accordingly, the sales of natural gas will be settled in accordance with the agreed payment terms.

From my experience I think the agreement with involve typically a three month rolling letter of credit and probably some form of upfront payment, probably also three months. It is unlikely the World Bank would have supported TPDC with a Partial Risk Guarantee (PRG) and or a Multilateral Investment Guarantee Agency (MIGA), but I might be wrong,

Shares in Wentworth are up 13% today and the other two AIM players that will receive a huge value catalyst from this news are the two other Tanzania London listed Tanzania gas players who have a similar JV turn on gas project ready to go at Kiliwani North are AMINEX  (AEX) shares up 9% today and Solo Oil (SOLO) whose shares are also up 9%

I would expect AMINEX to secure its GSA for Kiliwani quite soon and this would mean a significant re-rating of its stock and that of Solo Oil, who can excerise an additional 6.5% stake in Kiliwani on the GSA being signed. At 13% (78,000 MMBtu per month) Solo would generate over $200,000 of free cash flow per month.