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Aminex plc: THE INVESTMENT CASE

Aminex Plc on the cusp of gas production in Tanzania

The Kiliwani North gas operations, due to come online in April 2016, will be a key milestone in the group’s development.
Production at Kiliwani North will be sold at the well head, the gas will be transported to Tanzania's capital Dar es Salaam.
INVESTMENT OVERVIEW: AEX The Big Picture
Kiliwani North will anchor strategies for future ‘blue-sky’ exploration

Aminex (LON:AEX) has quietly come a long way in recent years and is now on the cusp of establishing its first revenues in Tanzania, which has been the core focus on the group.

The Kiliwani North gas operations, due to come online in April 2016, will be a key milestone in the group’s long awaited phase of development.

Aminex retains just over 50% of the Kiliwani North well, which is expected to initially produce between 20 and 30 million cubic feet of gas per day. The project was estimated, in a May 2015 evaluation, to generate between $10mln and $15mln of net cashflows.

It is currently estimated to host 28 billion cubic feet of contingent gas resources which could be converted to reserves once production is established.

Jay Bhattacherjee joined the group as chief executive in late 2013. He has since put in place sufficient funding to advance the Kiliwani North field and has had the business on a tight leash to achieve the important milestone.

Kiliwani North is, from Aminex’s point of view, now ready for production.

In a statement, on March 15 2016, it confirmed that final testing for well integrity had been completed, and that the well had recorded a high pressure reading compared to other producing wells nearby.

Aminex, and its partners, now await the commissioning of connecting gas processing facilities on Songo Songo island. From Songo Songo, the Kiliwani North gas will be transported by pipeline to Tanzania’s capital Dar es Salaam.

Kiliwani North’s gas is, however, sold ‘at the well head’.

The well head price was set out in the gas sales agreements signed in January 2016. The gas is to be sold at $3.07 per thousand cubic feet.

“The successful conclusion of the well integrity tests and installation of the wellhead control panel finalises the Company's preparations prior to the commissioning of the new Songo Songo Island processing facilities,” Bhattacherjee said, March 15 2016.

“Aminex looks forward to the commencement of gas production and revenues from Kiliwani North."

Shorecap analyst Craig Howie, in a note, said: “commercial production is now very close and we continue to expect this to be a very important milestone for Aminex and its partner Solo.”

 

Ruvuma and Nyuni offer blue-sky potential

 

Kiliwani North anchors Aminex’s operations in Tanzania. The soon-to-be-cash-generative asset will underpin strategies for further expansion.

With the Ruvuma and Nyuni production sharing agreements Aminex has earlier stage but potentially much larger exploration assets.

These areas are mostly onshore, in coastal areas nearest to the very large gas discoveries made by Shell, Anadarko, Exxon and other majors in the east Africa region.

The Ntorya gas discovery is the most advanced of the assets here. And future work is likely to involve appraisal drilling to expand upon findings from a 2012 well.

Ntorya-1 flow tested at 20mln cubic feet per day, with 139 barrels of condensate. And, subsequent seismic exploration work confirmed material upside. A new well, Ntorya-2, could potentially target some 1.5 trillion cubic feet of possible in-place gas resources, in Cretaceous and Tertiary reservoirs.

Wells offshore - for example those drilled by Anadarko and Ophir Energy - have made large discoveries.

Aminex commissioned a competent persons report, released in May 2015, which estimated the potential for nearly 10 trillion cubic feet of gas in place across the Ruvuma and Nyuni exploration areas.

More importantly, that study identified four ‘drill ready’ prospects in the Ruvuma PSA. These prospects - Ntorya Updip, Namisange, Likonde Updip, and Sudi - were together estimated to host 3 trillion cubic feet (3 TCF) of possible gas resources.

In Nyuni, meanwhile, a total of 5.7 trillion cubic feet of in-place gas resources was estimated.  The study also highlighted a new focus area, in deep water where the Pande West and Balungi exploration leads were identified.

All this prospectivity has been an important strategic consideration, but, particularly in the current industry environment, it has been on the back-burner as a lower priority to establishing revenues.

 

Corporate deals an option, but so are 'alternative strategies'

 

In early February, a proposed partnership with Bowleven unravelled, Aminex told investors it would be assessing alternative ways to monetise gas resources in the Ruvuma PSA.

Top level terms were agreed for a tie-up with Bowleven back in November 2015, before the arrangement was cancelled in February. Aminex, at that time, said a forward work programme could not be agreed which would be acceptable to Aminex and other stakeholders – including the company’s lenders and the Tanzanian authorities.

Whilst specific details were not disclosed, the November investor communications surrounding the Bowleven deal highlighted the possibility of a ‘multi-well programme’.

The deal, had it gone through, would’ve seen Aminex give up a substantial portion of its percentage interests in the projects. Bowleven would’ve taken 25% of Kiliwani North and 50% of Ruvuma, while Aminex would’ve got $8.5mln of upfront cash plus the benefit of ‘carries’ on future work.

Further back in the history of these projects, before Bhattacherjee joined, Aminex was partnered with Tullow Oil - though the FTSE 250 oiler dropped out part-way through the Ntorya well.

Aminex currently retains majority stakes in all its Tanzania assets, and its acreage position is both large and strategically positioned.

Naturally, the current environment is particularly conducive to optimal deal-making. Weak international commodity prices very much make it a ‘buyer’s market’.  Currently, possible partners are more likely to see distressed companies and assets as lower hanging fruit.

For this very reason, Kiliwani North and the promise of revenue generation remains a very significant milestone for Aminex.

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