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;

22^nd December 2011 Spudding of Ntorya-1

27^th February 2012, Ntorya-1 gas discovery

30^th April 2012 Ntorya-1 drilling update reported the gas discovery was potentially commercial.

28^th 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 27^th February announcement of a gas discovery, which was surprising, however, that changed quite soon. The 30^th 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 1^st 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

• Aberdeen, Scotland UK
• Esbjerg, Denmark
• Stavanger, Norway
• Cape Town, South Africa
• Luanda, AngolaCalgary, CanadaHalifax, CanadaHouston, USARio de Janeiro, BrazilSt. John’s, CanadaVillahermosa, MexicoAtyrau, KazakhstanDammam, Saudi ArabiaDaqing, ChinaDoha, QatarDongying, ChinaKaramay, ChinaKuala Lumpur, Malaysia
  and by no means is this the full list......

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.

LGO Energy (AIM:LGO) Shares at a ten year low. Are we in the investment horizon?

LGO Energy (AIM:LGO)

Shares at a ten year low

But with the commencement of a turnaround strategy now under way, are we now in the investment horizon?

There is no secret to successful stock trading, it really is just a matter of buying low and selling high. Naturally the trick therefore is working out when is a low a low and when is a high a high.

It may come as a shock to some, but circa 50% of global stock market trading is undertaken through high-frequency trades on electronic algorithmic trading systems. Fund managers through their IT team, set certain criteria in a trading program based around market fundamental indicators such as currency strength, commodity pricing, weather, financial market indicator reporting news and even factors such as elections.

These factors are programmed into algorithms that are then aligned to stock portfolio’s that are often spit into sectors and where these underlying market indicators impact these sectors, the fund is then programmed to buy or sell.

So for instance, if a fund manager believes the oil price and its underlying value is likely to fall, that event is likely to impact on the stock price of oil companies and so the algorithm will be programmed to sell off that section of their portfolio and or sell short those oil stocks in the portfolio. 

The reverse is also true should the fund manager believe the underlying value of oil is likely to increase then the algorithm will be programmed to buy the oil section of their portfolio.

Last week my colleague had a series of meetings with London stockbrokers and he reported back that there was a real mood upswing underway in the market related to the oil and gas sector……..why I said?

The upside price increase exposure could be significant with a positive swing upwards in the oil price.

Well the view on the street is that the oil price is likely to bounce back and bounce back big. Investors believe that there are real bargains to be had in the market at the moment, particularly with the funding / IPO of decent oil and gas stocks, where pricing will be on the low side, but where the upside price increase exposure could be significant with a positive swing upwards in the oil price.

So this leads me nicely into LGO Energy. It is fair to say that following the exogenous economic and technical shock LGO suffered back in September 2015, caused by the Trinidad Goudron oilfield GY-678 well bore, obstruction and abandonment, LGO's share price took a hit.

The fallout from this shock saw the subsequent suspension of the banking arrangements put in place by BNP Paribas, (designed to help fund LGO's Goudron oilfield expansion and production) and the share price of LGO Energy fell sharply.

LGO’s share price was trading at around 1.35p during September 2015, having come off a high of 6p around September 2014.

One should not forget that in April 2014, LGO’s share price traded at circa 0.6p and then went on a bull run that saw the shares reach a price of 6p on the 29th September 2014, a bull run that coincided with very positive development activities underway at Goudron and one that certainly caught the shorters by surprise.

Whilst the bull run on oil started to slow in June 2014, it was not until mid September 2014 that the price slipped below the psychological level of $100.

For those that had invested in LGO in April 2014 and got out of the stock in September 2014, they would have made a return on their investment of a staggering 900%

Investing is about picking your investment and realisation horizons. Fundamentals are important and we should not forget that LGO, prior to the GY-678 incident, had actually been doing very well.

For 6 month financial reporting period ending 30 June 2015, LGO posted revenue of £6,610,000 (1H 2014 £3,230,000), an increase of over 100% and posted a gross profit in that period of £2,062,000 (1H 2014 £797,000), a rise of over 150% and had narrowed pre-tax losses for the group to just £187,000, not bad considering the huge investments the company was making in sinking new wells at Goudron.

Are we now in the investment horizon for LGO?

I think we are and the reasons for this are as follows

1, The oil price is starting to recover and this should signal sector improvements as funds aligned to algorithmic trading push buying volume back into the oil sector. For example, April was a good month for BP, their shares have now started to post gains from losses in February and March. This momentum will inhibit the shorting of oil stocks. If oil goes on another bull run, which is likely given the fact the International Energy Agency is now commenting that oil oversupply will shrink dramatically in 2016, and a tightening of the market is now on the cards, oil stocks like LGO’s should see  a sector positive investor sentiment return into their stock.

2, LGO’s turnaround program at Goudron is underway and is starting to see production rise to 500 bopd and with more well recompletions, this production level should continue to rise. With bopd all in costs at Goudron of circa $27 bopd and with rising oil prices, fundamentals are looking better. The BNP debt is only $4.8 million and should be possible for re-structuring. On that front it is important to remind the market that LGO has two very positive independent technical and geological reports on Goudron, by respected consultants such as LR Senergy (http://www.lr-senergy.com), these reports will help in any debt restructuring process.

3, LGO’s shares are trading at 0.2p. This is a five year low and has seen the market cap of the company fall to just above £10 million ($14 million)

If Brent can hit $50, LGO will net circa $23 bopd. I anticipate production volumes through the re-development program to hit 650 bopd, over 12 months this should deliver circa $5 million in revenue, which is 35% of LGO’s current market cap valuation. Accordingly, the prognosis for an LGO share price recovery looks pretty good.

With these factors in mind it may be time for LGO to take investors on another run, like they did between April 2014 and September 2014. The fundamentals for this bull run are now lining up very nicely.

Kiliwani North KN-1 Gas Well, Onshore Songo Songo Island, Tanzania. Gas Sales Agreement Secured. What This Means Financially.

Huge cash flow boost to Solo Oil (AIM:SOLO) & partners

Fantastic news out yesterday by the partners in the Kiliwani North gas field (Ndovu Resources Ltd (Aminex) 55.575 % (operator), RAK Gas LLC 23.75 %, Bounty Oil & Gas NL 9.5 %, Solo Oil plc 6.175 % and TPDC 5 %) who have finally been able to secure a Gas Sales Agreement (GSA) that now means the production ready KN-1 well can start to flow gas and help generate cash flows for the partners in the agreement.

So what will this mean in terms of cash flows for Solo?

Approximately 20 million cubic feet of gas per day will start flowing from the Kiliwani North KN-1 well to the Songo Songo gas processing plant. This is a facility that has a capacity to process between 1.98 MMcm/d (70 MMcf/d) and 2.97 MMcm/d (105 MMcf/d)

Gas from the KN-1 well, following processing, will flow through a 12 inch pipeline that runs 25 km (15 miles) from Songo Songo Island to the Somangafungu onshore processing facility where it is then transported another 207 km (129 miles) by a 36 inch pipeline to the Ubongu power plant in the Tanzanian capital, Dar es Salaam.

Under the GSA, the partners will receive US$3.00 per mmbtu (approximately US$3.07 per mcf) and the price will be adjusted annually by applying an agreed United States Consumer Price Index. The gas price is not linked to any commodity price so is unaffected by current commodity market conditions, which is a real benefit to the partners, meaning business and financial planning can be undertaken by the partners based on stable pricing and incomes from

KN-1.

Solo will benefit from cash flow of $50,000 per month on start up phase

rising to $100,000 and up $230,000 US$ per month on exercise of full percentage production share. 

At a flow rate of 20 MMCF per day / circa 600 MMCF per month. (600,000 MMBTU per month), Solo’s share is initially a 6.175 % based production share ie 37,050 MMBTU per month. Based on the agreed GSA contract price of $3.00 MMBTU, Solo will secure a monthly cash flow of circa $111,150, on a full production level at 6.175%, initially, the income in the start up phase will be circa $50,000 per month.

If Solo decide to exercise their option to increase their stake to 13% then their share of monthly production would be 78,000 MMBTU and would deliver monthly cash flows of $234,000, on full production flow helping generate close to $3 million in annual cash flows.

Solo has Set Itself Apart from its peers on AIM

For investors in Solo, the news today should be seen as game changing. Given the difficulties companies operating in the oil and gas sector are having in raising capital on the AIM market at the moment, Solo has now set itself apart from its exploration peers and moved into new business territory, where it will be able to deploy its cash resources to help advance its other assets which include the massive potential locked in the Ntoya and Ruvuma Basin PSA where potentially at Ntoya another 20 MMCF per day could flow.