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Wednesday, 22 March 2017

SOLO’S STAR RISES WITH LATEST HELIUM INVESTMENT

SOLO’S STAR RISES WITH LATEST HELIUM INVESTMENT

SIGNIFICANT STAKE TAKEN IN HELIUM ONE LTD & TECHNICALLY ADVANCED CRUDE HELIUM DISCOVERY IN TANZANIA.



Exciting news out today by Solo Oil (AIM:SOLO) with their venture into the specialty gas market, by taking up to a 20% stake into Tanzania focused Helium One Limited www.helium-one.com.

The deal will see Solo take an initial investment of £2.55 million for a 10% interest by way of £1.2 million in cash and £1.35 million through issuing new ordinary Solo shares. This is followed by a call option to increase interest in Helium One to 20% through a further investment of £4 million by way of £2 million in cash and £2 million through issuing new ordinary shares.

The transaction values Helium One at $40 million and provides the company led by proven dividend payer and ex Polo Resources Chairman Neil Herbert (over his 4 years as Managing Director Polo paid $185m in special dividends) with the funds to develop the impressive Rukwa project, complete a drill target assessment program and position Helium One to set off on a further fundraising round to drill Rukwa in 2018.

So far Helium One has stacked up an impressive level of external professional independent oversight of what is a frontier helium discovery in Tanzania, which includes, the University of Oxford and Netherland Sewell Associates. Indeed the University of Oxford and Durham University have both been engaged in an extensive research project investigating this new helium province.

For Solo, the deal today provides their shareholders with investment exposure to a premium priced speciality gas that is not priced or generally impacted by the hydrocarbon pricing index market.

For example, the price of helium gas is traditionally benchmarked to the bi-annual auction of helium from the United States Strategic Helium Reserve, by the US Bureau of Land Management (BLM).

Back in 2005, the auction price for helium was set at just under $70 mcf, by 2015 the auction price had seen bids of $100 to $106 per mcf.  Contrast this to natural gas prices that are currently circa just under $3.00 mcf, you can see why Solo has taken such a shine to this sector of the market.  I would expect extraction costs to be under $30 mcf…….meaning Solo have secured access to a potentially highly profitable commodity.

Indeed opportunities for investors to get into the speciality helium gas market are practically impossible, unless you invest directly into the listed speciality gas majors such as Praxair (NYSE:PX), Air Liquide (EURONEXT AL) Air Products (NYSE:APD) or Linde (FWB:LIN)

So for AIM investors and indeed general investors in the London market, they now have in Solo / Helium One the opportunity to secure investment exposure to a commodity that is set for a massive supply deficit and pricing event by 2020, when the strategic helium reserve in the USA is anticipated to be depleted.

In terms of new supply, helium, by way of extraction from natural gas (concentrations have to be over 3% for this to be economical), the USA and Qatar currently dominate the supply of helium (57% and 25% respectively) – Algeria, Australia, Canada, Poland and Russia are also producing nations…….So you can see just how big a supply deficit a depletion of US supply could have on the market……..it would be massive and certain to drive the price of helium through the sky……..to coin a pun.

In essence, this is the opportunity for investors…….and it’s a unique opportunity on AIM, for Solo shareholders to secure Alpha if Helium One strike it rich.

The market behind the demand for helium, such as medical devices, MRI Scanners, welding equipment, nuclear industry and balloon market is huge, the actual global sales of helium in revenue terms are under $6 billion annually.

Contrast this to the huge natural gas market, means for Tanzania’s economic development, the helium sector will be dwarfed, but where Tanzania does win on this deal is more to do with the positive research and development message this sends out about the country, specifically given the presence of Oxford and Durham Universities, who are researching the discovery, great academics to have in town.



The Geology

The helium discovery at Rukwa, was initially made through the identification of helium-rich hot springs that sit on the periphery of rift basins that provided the initial evidence of an active helium charge along faults and likely into subsurface traps. The hot spring gas analyses report Helium One has on Rukwa sees concentrations as high as 18% with numerous instances of between 8 and 10% by volume.

Helium is sourced from pre-Cambrian basement rocks via fault            migration into a younger stratigraphy and is then contained in Red Sandstones and Karoo Supergroup rock formations, and where the helium is trapped by impermeable lake-bed rocks.


Drilling

Tanzania’s Ministry of Energy and Minerals correctly classify helium as an industrial gas mineral, however, it is anticipated that drilling would have to follow the same protocols as for hydrocarbon exploration, given the wells would be gas producing.

Investment Upside

As mentioned, for AIM investors and indeed any investor, the opportunity to secure early stage access to the significant supply, demand and pricing market a pure helium play like Helium One provides is really exciting, unique and where I will certainly be investing.

The other factor is the win-win for Solo and Helium One.

For Solo they have joined forces with a proven tier one dealmaker in Neil Herbert, who is supported by a world-class corporate and geological team with significant in-country experience (Board members are ex Ophir Energy and you should all know that story)…….So I would expect significant transaction interest into Helium One by one of the major first tier speciality gas companies when the project has been drilled and re-risked.

I can not for one minute think why a major speciality gas company would want to see their rival take control of a strategically placed helium asset that can easily be transported with 45 days of both the US and Asia markets and importantly unlike the forced daily stripping of helium that is required through a natural gas associated play, Helium One’s pure crude supply means production flows can be turned on or off as market conditions allow………..this is a huge factor.

For Helium One, Solo is a perfect shareholder to have on their register, particularly given Neil Ritson’s proven track record in bringing Tanzania gas from exploration and into production in the case of Kiliwani and also in the development of the huge Ruvuma gas project, which has recently been taken up a steep value curve. Further to that, significant increases in investment support for Solo are now being driven by finance chief Dan Maling, another proven dealmaker.












Sunday, 12 February 2017

AMINEX SHARES head over 5P .........SOLO moving towards 1P

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.

Thursday, 24 November 2016

Wentworth Resources Q3 Results Shine a Positive Light on Tanzania.............The Ntorya-2 Appraisal Well Aminex & Solo Set to Glow in 2017..................Ruvuma Gas Could Be Plugged in for Export Markets.

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.



CRUDE PRICES NEED TO HOLD UP DESPITE OPEC

With a number of oil companies disposing of higher cost marginal production assets and higher cost potential exploration acreage and re-aligning portfolios towards the unconventional market, ConocoPhillips, being one company as an example, OPEC really does need to understand the economic impact on the oil and gas industry supply chains that have taken decades to be established at the "Energy Cities" 

Just look at the list of cities below that are impacted by LOW Oil and Gas Prices
Its huge

Wednesday, 25 May 2016

North Yorkshire Fracking, Could other councils follow suit?

The first fracking operation in England since a ban was lifted in 2012 has been approved by North Yorkshire County Council who have approved a bid Third Energy to extract shale gas at a site near Kirby Misperton in Ryedale.
https://www.third-energy.com/
The council's planning committee voted seven to four in favour
My guess is that  North Yorkshire County Council was probably looking at the positive economic development impact oil and gas developments bring to the regional economy. Remember many councils are facing severe cutbacks. 
Many other councils up and down the country will be monitoring closely the situation in North Yorkshire. If the impact of Third Energy's activities turn out to be positive, it could serve to trigger other councils to follow suit.