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.
