Wentworth Resources the Oslo Stock Exchange
(OSE: WRL) and London Stock Exchange (AIM: WRL) listed independent, East
Africa-focused oil & gas company put out their Q3 results last week. The
interesting news from these results was the performance of their Tanzania Mnazi
Bay MB-3 production well.
Wentworth reported gas sales revenues of
$2.38 million for the quarter (Q3 2015: $0.97 million). Average gross daily gas
production for the third quarter of 34 MMscf/d. Year-to-date average gross
daily production from MB-3 is 44 MMscf/d
The good news in these results is the fact
Wentworth is seeing good cash-flows from the domestic sales of gas from MB-3.
Further, Wentworth has reported that industrial consumer demand for natural gas
in Tanzania is moving in a very positive direction, with new demand being
generated from the Dangote cement plant (30-40 MMscf/d) and resumption of
operations at the Symbion power plant (20 MMscf/d)
Demand from Tanzania’s gas fired power
plants is also set to increase. The expansion of the Kinyerezi I power plant
and planned commissioning of the 240 MW Kinyerezi II power plant in 2018 all
point to very healthy demand for Tanzania’s domestic gas producers.
Enter
fellow AIM listed Tanzania gas production companies AMINEX (LSE:AEX) and Solo
Oil (AIM:SOLO)
Already enjoying cash-flows from their onshore
Kiliwani North Production Well, AMINEX and Solo (Now potential AIM IHT Portfolio Qualifying Investments) are now
set to spud the Ntorya-2 Appraisal Well on their giant Ruvuma 3.2tcf (revised internal resource estimate 18th
December 2014) onshore field in
the first half of December. The Ruvuma acreage includes the
Ntorya-1 onshore Cretaceous gas condensate discovery which has
been independently ascribed a 70
bcf gross contingent (2C) resource with the well flowing at
20 MMscf/d and 139 barrels per day of
condensate.
Aminex holds a 75% interest in the Ruvuma PSA with Solo holding a 25%
stake.
Investors, and indeed analysts, that are
interested in Tanzania’s oil and gas sector are now benefitting from the
increased reporting transparency that Wentworth, AMINEX and Solo are providing
the market with.
It is fair to say that as these three
companies, following their move into production, have enabled investors to
understand much better the timeframes and processes involved in taking gas acreage
in Tanzania from discovery into production. The pricing, supply and demand
fundamentals of Tanzania’s gas sector are now much better understood by the
market because of the presence of public listed companies such as Wentworth,
AMINEX and Solo and their active presence in the Tanzania market.
With that in mind, the market should get
ready for the spudding of Ntorya-2. The
timelines for Ntorya-1 were extended by changes in ownership, two stages of
deepening and a rigless test;
22nd December 2011 Spudding of
Ntorya-1
27th February 2012, Ntorya-1 gas
discovery
30th April 2012 Ntorya-1
drilling update reported the gas discovery was potentially commercial.
28th June 2012, Results of flow
test, Ntorya-1 flows 20 MMscf/d and 139 barrels
per day of condensate.
The market took little notice of the 27th
February announcement of a gas discovery, which was surprising, however, that
changed quite soon. The 30th April update, when news broke that
Ntorya-1 was a potential commercial discovery, saw an uplift in the shares of
both AMINEX and Solo.
AMINEX saw its share price rise from 3.54p
on the 1st May 2012 and reached 4.57p on the 1 July 2012, an
increase of 29%. Flow through valuation to Solo was somewhat muted, but given
Solo’s size today (about a third of AMINEX) the same fundamentals should apply
and Solo’s share price lift should mirror that of AMINEX, should Ntorya-2 enjoy
the same success as Ntorya-1.
What we know is that Ntorya-2 will spud in
December this year and based on previous reporting, but taking into account the
simpler well and a test with the rig still in place, it is likely that a
potential gas discovery will be announced around March 2017, but it could well
be sooner.
We are now in the investment horizon for Solo and
AMINEX
AMINEX may be seen to be well priced, but
Solo with 25% of the Ruvuma prize has a considerable upside. Neither company has much downside risk as
Ntorya is already commercial; now it’s all about the ultimate size of the
prize.
But
there is a further twist to this story.
Back in August this year, Tanzanian
minister for energy and minerals, Sospeter Muhongo, announced that the
government will invest at least US$30bn for the construction of a gas
processing plant in the Lindi region to handle gas from 200 km offshore.
The planned
site will sit approximately 60 kilometres from Ruvuma. Remember the Mnazi Bay to Dar es Salaam gas pipeline is already
operational and will link easily into the Lindi gas-processing site, given the
pipeline already passes via Lindi. Conveniently, the Ntorya field is circa 20km
from the pipeline. In short, it is far easier, far quicker and less costly to
plug Ruvuma’s gas into pipeline infrastructure than it is for the offshore gas
fields to be plugged in.
What
that means ultimately is that gas from Ruvuma can be distributed to Lindi for
export.
It is really important for investors to see
this opportunity as the Ntorya-2 Well, in my view has a really high probability
of demonstrating a further commercial upside on the existing Ntorya-1
discovery, which would add huge value to the field and naturally add to the
value of AMINEX and Solo.
Asian investors who are hungry for
Tanzania’s gas may take the view that it is better to invest in Ruvuma via
AMINEX and Solo, to secure export gas, rather than investing in Tanzania’s
offshore gas sector where costs for gas discovery are significantly higher and
the timelines to monetisation much longer.
