Aminex and Solo step up a gear



The acreage owned by the partners is surrounded by licenses owned by trans-national hydrocarbon majors 

It has been an excellent week for Solo Oil (LSE:SOLO) and Aminex (LSE:AEX) holders, with large gains seen for both companies on the back of the the beginning of the farmout process of their prospective Ruvuma license in Tanzania. Since the blog covered Aminex, it is up approximately 21.5% whilst fellow license holder Solo is up 54.4% since it was covered in August. Whilst the current share price movement is erratic at best, this article will seek to re-cap events since plus re-look at the valuation of the shared Ruvuma license.
For more information on the Ruvuma basin, visit the following article:
http://theel1tetrader.blogspot.co.uk/2012/08/rovuma-basin-basic-factfile.html

Solo Oil
Two significant news statements have been released since the previous articles. The first of these concerned the starting of the farmout process: [Aminex and Solo] has engaged FirstEnergy Capital LLP ("FirstEnergy") to manage a formal farm-out process for its interest in the Ruvuma Production Sharing Agreement ("PSA"), which is estimated to contain a total 5.75 trillion cubic feet ("TCF") discovered and undiscovered Pmean Gas Initially-in-Place. The commencement of the farmout initially had a minimal impact on the share price of both companies, and the effect looks to have been delayed with subsequent large rises. Given the presence of major oil and gas companies in the area, plus the relatively few smaller companies (Solo, Aminex, Wentworth and possibly Ophir), the chance to farm-in will attract both medium size and large companies alike. Given the huge resource potential, it is one of the cheaper options to get a stake in East Africa. In addition, the license is onshore, thus can be monetised quicker with the building of the new pipeline that passes right next to the license. The overall costs required to further the project will also be lower hence sweetening the opportunity.

FirstEnergy's experience and capabilities are expected to be of significant assistance to the Company in order to access a full spectrum of potential farm-in partners and to maximise the potential farm-in terms to the benefit of the Company’s shareholders.

Aminex
However, without a news statement, the rises appear to be on rumour and links to the second RNS released by Solo. This involved the cancellation of the Equity Line Facility (ELF) signed by Solo with Dutchess Opportunity Cayman Fund that means that no more equity dilution is currently needed to further the companies projects. This comes as a big relief to investors in Solo who have suffered from dilutions over the last 2 years. In addition, the fact that well over £6m was left on the ELF gives a huge vote of confidence for both Solo's Canadian and shared Tanzanian operations.

The key line in the news was the following: We are confident of finding a funding partner for the Ruvuma PSA and our need for funding of this type is deemed no longer necessary. This indicates that possible partners have already began signalling their interest to the extent that Solo can (with reasonable certainty) expect a free-carried ~12.5% final stake in the project. With the companies listed in the first picture, already operating in the area, plus large firms such as Royal Dutch Shell looking to get into the area, high values for the acreage should be able to be created.

Once again, using Cove Energy's takeover values the following can be derived from the Ruvuma license. 5.75TCF has been assigned as discovered and undiscovered resources. Therefore divide the £228.8m/TCF value that Cove achieved by 1000 and then multiply by 5750. Using Coves numbers this values the Ruvuma license at £1.315 billion. This 5.75TCF figure may also increase due to potential oil reserves in the Karoo region, plus potential upside following seismic in the area. Aminex also holds the Nyuni license to the North that contains a further 5+TCF. Ultimately, this places a value of £13m for each percentage stake in the license. However, this is likely to be over the top considering PTTEP probably overpaid for Coves stake therefore subtract 30% and we are left with a figure of £920.5 million. This estimates Solos stake to be worth ~£230m and Aminexs stake worth ~£690m. However, once again until these resources are proved up they are worth less so subtract a further 50% to be conservative. This places ~£115m with Solo and ~£345m with Aminex. These figures compare with estimated market caps of ~£17m and ~£43m respectively.

Since the partners will probably sell ~50% of their collective stakes, this will value the incoming stake at £230m. Discount a further 35% for good measure and to account for other possible terms and conditions and the farm-in could total a value of £149.5m. If this was the case Solo would receive £37.3m equivalent and Aminex, £112.13m equivalent. Of course, all these values are speculative, but they prove that despite the rise in the share prices, on a long-term basis, Aminex and Solo are still very cheap (particularly Aminex who have the further 5TCF). Whilst the short-term outlook is unclear, real value should be able to be derived from the license either through a farmout or through exploration work. Alternatively, either company may be bought out for the assets.

With the share prices already significantly ahead of the first recommendation price, the rise looks like only the beginning for the two companies who should prosper in coming months. A short-term retrace may be on the cards, but the fundamentally strong assets exist, and have existed even when the shares were at minor lows.

12 comments:

  1. Smashing stuff

    Very happy!

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  2. Seconded ty for the effort and epic blog

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  3. Rock on

    well done everyone in both!!!

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  4. The rumour is that fastnet are farming in.

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    Replies
    1. thats nonsense, process has hardly begun

      great review el1te!

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    2. Fastnet only have £8m cash so very unlikely

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  5. I wonder if Genel are interested.

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  6. Fabulous write up Elite - great analysis - let's hope your figures come true!

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  7. Exciting times ahead for all SOLO and AEX holders !!! Good luck all..

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  8. Great update.Even with consevative estimates the figures very look good.

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