AIM’s Tanzania oil and gas players AMINEX
(AEX) and Solo Oil (SOLO), are currently enjoying a real bull run in their
share price. Here I explain why.
Having again scored another hit with their
latest Ntorya-2 gas discovery on their giant onshore gas field, in the Ruvuma
Basin, Tanzania, I see no reason why this bull run in the shares of both
companies will come to an end anytime soon.
The last twelve months has seen the
transformation of both companies from explorers to producers, with the Kiliwani
North Field now in production. This,
alongside exploration success at Ruvuma with the latest Ntorya-2 successful
appraisal (building on the 2012 Ntorya-1 discovery), has led the market to
realise the value that AMINEX and SOLO are building on their Tanzania
acreage.
If investors had taken a punt on AMINEX
twelve months ago, they would now be sitting on a 220% return. Likewise,
investors in SOLO have seen a return of 108%.
In terms of valuation, SOLO has a 25% stake
in Ruvuma and a 7.175% stake in the Kiliwani North production well, that has
cashflow potential of circa $198,000 per month based on current equity and
reported initial flow rate of up to 30 mmcf per day.
In other word’s SOLO has some further gains
and mileage in its share price, which should track approximately 25% of that of
AMINEX, i.e. 1p
This does not include the valuation
attributable to SOLO for its stake in the Horse Hill-1 discovery, known as the
“Gatwick gusher” (6.5%) where the operator is planning and extensive appraisal programme,
including long-term production testing and a new deviated well, HH-2. This is in addition to a 30% stake in the highly prospective PEDL 331
on the Isle of Wight, in the UK. SOLO also entered the Nigerian market by
taking a 20% stake in Burj Africa, a Nigerian oil and gas developer. Moreover, the
company is currently looking at other high-rewarding and low-risk opportunities
to increase value for its shareholders.
Geological
Risk at Ruvuma is significantly lowered.
Both AMINEX and SOLO are seeing their
investment risk profile significantly lowered as a result of the latest
progress at the Ntorya-2 discovery, which is yet to be flow tested, but where
the early prognosis looks very promising. The reference point for how Ntorya-2
will play out technically are the results from Ntorya-.
The 2D seismic shot on Ntorya-1 acreage
showed a clear reflector at 2,485m (based on TVDSS of Ntorya-1). This reflector appeared to be
laterally continuous for around 4 km from ENE to WSW through both the location
of Ntorya-1 and the location of the Ntorya-2 well.
The 2D seismic also showed a clear high
amplitude streak at 2,485m. Ntorya-1 confirmed this survey through its
discovery and flow of gas-filled channel
sands. As the evidence from Ntorya-1 suggested this horizon is characteristic of
gas-filled, high porosity channel sandstones, therefore due to the lateral
continuity of the seismic reflector, the prognosis that Ntorya-2 would hit the
same gas-filled channel sandstone as Ntorya-1 was very high.
Moving forward, AMINEX and SOLO are considering
spudding their third Ntorya well. The Ntorya-3 well will go further up-dip to
test the thickest part of the main Cretaceous channel fairway and will also
target a Tertiary objective interpreted to be an up-dip extension of the
Likonde-1 well. Ntorya-3 is targeting gross best estimate prospective resources
exceeding 300bcf. I also believe that
AMINEX and SOLO may be considering a field-wide 3D seismic survey from which to
plan the field development.
The considerable exploration investment in
Ruvuma, both existing and planned, only serves to increase its valuation and
attractiveness as a potential take out target by a major.
Dilution
Risk
If Ntorya-3 hits gas (and the prognosis
looks as good as Ntorya-2) then it really is boom time for valuations of AMINEX
and SOLO, which remember are both cash generating producers……………dilution risk
is also lowering at a time when valuation and revenues are increasing.
Tanzania is a great oil and gas
jurisdiction, I often refer to it as the Qatar of Africa. Many of the world’s
leading oil and gas companies are present in the market, which is why I think
Ruvuma holds a real potential as a take out target, but where the newsflow over
the next 12 months is very likely to help underpin the current bull run in both
stocks……………….the geology certainly tells me so.
Aminex holds a 75% interest in the Ruvuma PSA
and is operator, with Solo holding a 25% stake.
As always, do you own research and always
seek independent expert financial advice.
No comments:
Post a Comment