Solo Oil Has West African Production In Its Sights Analyst Barney Gray today initiated his coverage on the stock with a ‘buy’ recommendation and a 1.5p price target
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Solo Oil Has West African Production In Its Sight Analyst Barney Gray today initiated his coverage on the stock with a ‘buy’ recommendation and a 1.5p price target
Solo Oil Has West African Production In Its Sights Analyst Barney Gray today initiated his coverage on the stock with a ‘buy’ recommendation and a 1.5p price target, which implies the stock could almost 7 x value from the current price of 0.23p.
In March AIM-quoted small cap Solo Oil boosted what CEO Neil Ritson called its “war chest”, raising £2 million through a private placing with institutional investors priced at 0.5 pence per share. Now shareholders have been given a glimpse of Solo's plans, with the company announcing an MoU to acquire a 15 per cent shareholding in Swiss-based Pan Minerals & Oil, a special purpose vehicle that is negotiating an onshore position in West Africa. The consideration is £500,000, comprising £200,000 in cash and the issue of 60 million new ordinary shares, and the aim is to convert the MoU into a full sale and purchase agreement .
Pan Minerals focuses on proven reserve assets that can be brought into production at rates of more than 2,000 bpd within a 12 month period. To date it has invested nearly US$3 million in efforts to finalise farm-ins in proven oilfields in West Africa. Solo has a 90 day option for a right of first refusal to participate in any future equity financing of Pan Minerals as it develops oil production opportunities in West Africa, providing a mechanism to increase its shareholding in Pan Minerals from 15 per cent up to 49.9 per cent. As yet, details of the onshore oilfields are confidential but Ritson said the Solo Board – which includes natural resources entrepreneur David Lenigas, who also backs African budget airline Fastjet - was familiar with the fields in question.
The news comes as investors continue to await news of the farm-out of the London-based company's 25 per cent stake in the Ruvuma Basin PSA in Tanzania, where it is seeking to farm-out up to 50 per cent of its position. Operator Aminex, which holds 75 per cent, is jointly farming down and the process, which officially started in October, is now running late, with the timetable for bids pushed back from February to March. In late March the news was that discussions were still ongoing. These delays are making investors jittery as Ruvuma is a key asset for both companies.
The companies report there has been “substantial interest” from multi-nationals and NOCs in the acreage. FirstEnergy Capital, which is managing the farm-out, said high levels of interest had made it impossible to accommodate all the interested parties in the physical data room prior to the original bid deadline, with several companies asking for the deadline to be extended to allow them to complete their evaluations.
The Ruvuma PSA stretches for over 6,000 sq km on the Tanzania/Mozambique border. This is a region where over 100 TCF of gas has been found in the deep offshore and Aminex has shown that this producing trend extends onshore, with its 2012 Ntorya-1 wildcat testing at over 20 million cf/d of gas and 139 barrels of condensate. According to ISIS petroleum engineers, this well proved 178 BCF of gas and could point to over I TCF of unrisked gas in place.
While the acreage failed to retain the interest of former JV partner Tullow Oil, there is plenty of scope here for material finds – indeed, as much as 5.7 TCF according to ISIS plus the potential for oil in deeper formations. And, unlike the mega gas fields in the deep offshore, this is low cost onshore gas within striking distance of the Mnazi Bay-Dar es Salaam gas pipeline that is currently being built with Chinese money providing a ready route to monetisation.
In March Solo, which also has a 28.56 per cent in a light oil enhanced oil recovery project in Ontario, raised £1 million from institutional investors in a placing priced at 0.5 pence per share to strengthen the balance sheet during the farm-out negotiations.
A week later, another £1 million was raised on the same terms after another institutional investor sought to back the small cap. Ritson said it was “prudent to build a bigger war chest” to allow the company to assess new opportunities. West Africa has been a graveyard for a number of small caps, unprepared for the challenging operating and business environment but it is, undoubtedly, also a resource-rich region with a multitude of overlooked onshore opportunities that, in the right hands, could prove very lucrative. Investors will want more detail before they make a judgement.