Aminex Plc - First Post!

http://www.aminex-plc.com/


Aminex Plc (LSE:AEX) is a dual listed oil and gas company which has recently set its focus on Tanzania. It is listed on the main board of the London Stock Exchange thus is able to be put into an ISA, however due to its listing on the Irish Stock Exchange it does attract the 1% stamp duty. It has a £35m market cap (Londonstockexchange.com) & 819m shares in issue.


Currently Aminex has operations spanning 2 continents, Africa and the USA but with the introduction of a new CEO (Stuard Detmer), it has set its sights on Tanzania which is fast becoming a major hydrocarbon province. Aminex plans to divest of its operations in the USA (along the south coast) whilst maintaining a small 10% stake in an Egyptian License where it has a free carry. Their Korean assets have recently been disposed of due to the slow progress and unstable political nature of N/S Korea.

Aminex has been listed on the LSE since 1992 and it’s fair to say it had a bumpy ride reaching an all-time high near 100p just after the IPO, but since falling dramatically, making its all-time low in 2011 near 2.5p/share. Previously it had interests in the USSR and even and a takeover bid back in the early 21st century from Apple Oil and Gas albeit it this was swiftly rejected. Its current share price is hovering around the 4.4p mark after having a very volatile start to the year.

However, with a new CEO (former CEO of Sibir Energy) and the huge potential of their Tanzanian acreages, the future is getting brighter for Aminex. I will run through their current operations & recent news statements.

Aminex’s US operations currently comprises of 3 acreages Alta Loma, Shoats Creek & South Weslaco. Their Somerset field was also recently disposed of in the first stages of the US divestment. In each acreage Aminex has a sub-hundred percent stake.

The US fields produce steady cash flow through a multitude of wells, but have been described as mature and will not be able to create upside for investors so the decision as made to focus on Tanzania. Despite this some of the gas and oil markets at significant premiums to the market price due to its rich components and proximity to market. The Somerset field was sold during March 2012 for a total sum of $701,600 to two separate companies. Upon completion of the transaction, CEO Stuard Detmer commented, “The divestment of the Somerset properties, while small in size, is an important first step in rationalising the Aminex portfolio and redirecting resources towards high impact investments in core geographies.” Then, towards the end of May, Aminex announced the marketing of their remaining US assets through ‘Meagher Energy’, a US outfit. It was noted from this that the sale of the assets is expected in Q4 2012. Since then, Aminex has further updated investors after receiving notice from the operators of Shoats Creek and Alta Loma that further work is being done on the well as we speak and that these work schedules should materially improve production whilst the transactions are still expected to be done in Q4. This should allow Aminex to fetch a higher price for their US assets.

Switching to Egypt, their assets there have been on the backburners for a while as little exploration has been completed in the last couple of years, however this is set to change with a well being drilled within the next year. This is not likely to set off any fireworks though as previous wells have been unsuccessful and due to Aminex only having a 10% stake.

Now, the interesting part about Aminex begins, their Tanzanian assets (operated through their fully owned subsidiary, Ndovu Resources). They have three separate licenses in Tanzania, the Nyuni PSA, the Ruvuma PSA and a Kiliwani North Development license. Initially when Aminex entered Tanzania they drilled two preliminary wells, Kiliwani-1 and Nyuni-1. These wells turned out to be unsuccessful. However, the results of Kiliwani-1 warranted further investigation which led to the drilling of Kiliwani North-1 which was drilled in 2008. Surprisingly it hit a gas deposit which was flow tested at 40 million cubic feet/day (equivalent to 6700 bopd) which exceeded initial expectations along with 1 barrel of condensate per million cubic feet. This discovery is expected to come online in late 2013 when a pipeline from the capital city Dar Es Salaam is built.

Since this Aminex has increased its activity in Tanzania, drilling more wells, undertaking seismic and farming out interest. They drilled their first well in the Ruvuma PSA (6079km2) in early 2010 through operator Tullow, nicknamed Likonde-1 along with partner Solo Oil. It reached a total depth at 3.647km and whilst it was technically successful in terms of the geology, it failed to encounter commercial hydrocarbons. Encouragingly 2 sandstone intervals measuring 250m were identified with core samples (from the sides of the well) finding residual oil traces.

Aminex also drilled Nyuni-2 in 2011, which led to the share price halving after technical problems led to an overrun in the budget and significant time delays. It is worth bearing in mind though that this is a frontier region and problems like this are to be expected.

Following up from Likonde, Aminex drilled Ntorya-1 in late 2011. Initially the well was designed to test two periods of rock; the cretaceous and basal tertiary sections. To the disappointment of investors, the share price fell again, back towards 3p as it was announced that no sandstone intervals were found at the expected depths and a decision on the future of the well would be made soon. Interestingly, they had carried on drilling to 2500m though, and had encountered gas traces. 3 days later, it was announced that Tullow had withdrawn their interest from the well (and later from the entire PSA), but Aminex and Solo Oil would continue drilling to a new depth of 2750m. Having done this, the well was logged and Aminex was soon celebrating its first gas discovery in the Ruvuma license. A gross 25m interval was located with 3m of net pay. Upon the gas discovery the CEO mentioned: “Following recent high-profile exploration successes in the offshore Ruvuma Basin of Tanzania and Mozambique, the Ntorya-1 well has established for the first time the presence of reservoired hydrocarbons onshore. Given current plans to develop major gas infrastructure on the coast just 25 kilometres away, this has the potential for commercial development and opens new possibilities in the underexplored onshore regions of our Ruvuma block PSA.” Since then, the discovery surprised investors further with a flow rate half of Kiliwani (20.1million cubic feet/day) from only a 3m net pay section, but it ALSO included an unexpected 139 barrels/day of 48 degree condensate. This has firmly put the spotlight on their future operations here, not least because they were then awarded approximately a 5.5TCF contingent gas base to each of these Tanzanian licenses.

Currently they have a 65% in the Kiliwani North Discovery, 70% in the Nyuni PSA and 75% in the Ruvuma PSA. Aminex looks a bright prospect not least because of what’s happening around it. As the picture above shows, many TCF are being found offshore Mozambique and Tanzania, to the extent that it is now being called the next major gas hub that will power Asia for years to come.

Despite the relatively few number of wells drilled in East Africa, gas finds have neared 100TCF with companies such as Anadarko, Shell & BG Group flocking to the area making significant finds. This has led to the fast boost to companies such as Ophir Energy whose share price has more than doubled since its IPO in 2011 and Cove Energy who has been in a fierce takeover battle since the start of 2012, with its share price rising 4 fold over the period. One of Anadarko’s 15-30TCF finds is said to be enough to power the UK for 9 years at the top end of expectations. Geologists have estimated that a total of 441TCF could be lying of the coast of East Africa spanning the waters of several countries, not least Tanzania. It is important to note that Aminex’s Nyuni License is transition zone/shallow offshore/deep offshore acreage and the majority of their Ruvuma license is onshore. This can be seen as a risk should the geology inland not be similar to offshore, but the Ntorya-1 well has proved the converse already.
East Africa also has its advantages; there is high demand in East African for gas/oil due to the frequent power shortages experienced which have severely damages the GDP of especially Tanzania. The geology for East Africa is also favourable as it is composed of clear, distinct geological structures in formations than encourage large gas accumulations. It is also possible for the gas to be transported to Asian economies such as China and India (where gas prices can be 6 times higher than in the US) through the use of LNG Trains which are expected to be built over the next half decade.

Of course, there are also potential problems. Drilling rig shortages since 2008 have hurt African based explorers with prices reaching £500k/day, but this has failed to deter the exploration. However, to an extent Aminex is oblivious to this because the Ruvuma acreage is onshore and some of the Nyuni license can be drilled from shallow offshore reefs. This helps because land rigs are far cheaper. Another potential problem is the lack of infrastructure in East Africa which is what has caused the delay of production at Kiliwani North. On the contrary, this is also being sorted with the building of the pipeline which is conveniently close to Aminex’s acreages. The only problems that aren’t covered are that of maritime piracy and governmental corruption, but this is more prevalent in West Africa.

So, where is Aminex going next? Aminex has constructed a four part plan for its future; High impact acquisitions in Tanzania, De-risk exploration properties, Strategic partnerships & Manage portfolio.

First off, Aminex is planning to be a consolidator of small cash strapped companies where it will ‘leverage higher multiple of its main listing’ – basically it should get better prices because it’s listed on the main board. It is planning on constructing a portfolio which includes an ambitious 7 wells/year. Next, through the use of seismic Aminex plans to farm down its interests in Nyuni & Ruvuma through farm outs to larger players that have the financial capabilities to drill the wells targeting a 35% working interest in each license. They will also build more strategic partnerships with investors principally from Asia and the Middle East. Easier said than done? Back in December Aminex raised $3.1m with a Chinese billionaire and the Reignwood Group at a whopping 45% premium to the share price. Without a capital reconstruction, Aminex can no longer issue shares below 5p, whilst the current share price is 4.5p providing a good barrier. Lastly, the managing of the portfolio refers to divesting of non-core assets.

It is likely the main share price drivers for Aminex are not the monetisation of existing/future assets, but the discovery of them, farm downs and US asset sales. Aminex have plenty of leads, not least the lead 3 on their Nyuni PSA which spans mostly into Ophir’s PSA, but with the optimal drilling location being Aminex’s. The timeline below shows key achievements over the next couple of years. East Africa has managed to transform two companies already, and it is probably Aminex will follow suit. Of course, there is always the probability that Aminex will never achieve these feats should a takeover offer come in, but this is likely to be at no less than 8.5p, and is not probable until further work is done on the licenses. The farm outs should cement Aminex’s place in one of the hottest hydrocarbon provinces in the world. Whilst exploration risk exists, almost every well drilled offshore Tanzania to date has found gas, and with the encouragement of Ntorya, Aminex can be confident it has a bright future ahead – Definitely one to watch.

10 comments:

  1. Good start. Looking forward to future posts

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  2. Looks great and good luck........PJ1

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    1. Thanks, if you ever need an article then send a message on advfn and I'll shoot one up. Current Aminex posters get special mentions :)

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  3. Good, well balanced article. Keep up the good work. Defo one to watch for future growth next year.

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  4. Well done El1te, appreciate your effort.
    Bob M

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  5. Great consolidating article , bringing an excellent overvidew of AEX into one balanced publication

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  6. Good job Elite...very concise and useful for existing and anyone new to investing in the company. Keep going!

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  7. Invested here because I like the Thai connection . My Wife is Thai and I have gained more background info on this one. interesting article here Elite keep up the good work

    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/9368387/Oil-and-gas-are-the-new-African-queens.html#

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  8. El1te, many thanks for such an interesting piece. Have you calculated a potential sale price for the rest if the N American assets?. My fag packet effort is as follows.:
    Somerset sale was $701,600 for 2p reserves of 52,000 barrels giving a multiplier of $13.48/barrel.
    Applying this to 2p of 3.465 million (from slide 20 of july presentation) gives a figure of $46.7082m just for the Oil. I have no idea what the multiplier would be for gas which has plummeted in price.
    I would be grateful for your thoughts
    Ito

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