Bowleven’s (LON:BLVN) move into Tanzania has transformed the investment proposition of its new partner Aminex (LON:AEX), according to Shore Capital.
Craig Howie, Shore Capital analyst, described last week’s news that Bowleven would pay up to US$24mln for stakes in the Tanzania gas venture as “excellent” and said it was a “transformational deal in a challenging market.”
Aminex will receive an up-front payment of US$8.5mln, which helps shore up the balance sheet, and is taking US$5mln-worth of Bowleven shares, but has agreed not to sell them for nine months.
It then gets a US$10mln carry on any drilling on Ruvuma ‘enabling a multi-well programme’ on the block, which is already host to a discovery. Aminex will also get a US$500,000 bonus once the Ntorya-2 well is drilled and a US$4mln will be paid on achieving commercial production.
“Cash received up-front will substantially reduce corporate debt and Aminex will remain operator of all its Tanzanian assets,” he said in a note.
Howie highlighted that the deal implies a favourable valuation for the near production Kiliwani North project.
It also adds ‘comfort’ regarding the timeline for the anticipated start of production and gas sales, he added.
Importantly, Howie says, the deal will see drilling activity restart in the Ruvuma exploration and appraisal area with the backing of a strong partner. The spudding of the Ntorya-2 appraisal, within Ruvuma, is now expected to start early in the 2016 financial year, according to the analyst.
“Whilst we believe an excellent price has been achieved at Kiliwani North, deal metrics suggest that the Ruvuma transaction has been valued with reference to existing contingent resources,” he noted.
“We see significant unrisked potential beyond this, including circa 2tcf [trillion cubic feet] of prospective resources (recoverable) across four drillable targets.”
There is a trickle down benefit for Solo Oil (LON:SOLO), already a partner in both assets, which agreed to vend in a 12.5% stake to the transaction.
The carry and bonuses are worth just over US$3.6mln to Solo. “This is going to provide us with the funding for the appraisal programme at the Ntorya gas condensate discovery,” said Solo chairman Neil Ritson. “It is the right deal, at the right time and not complicated at all.”
Bowleven chief executive Kevin Hart told investors the Ruvuma acreage offered the same near-term potential of his company’s onshore Bomono gas assets – one of two projects it has in Cameroon.
He reckons there is an opportunity for a gas to power operation that would feed a power hungry developing Tanzania market.
Bowleven, which banked US$165mln from a farm-out deal in March, is one of those companies lucky enough to be cashed up as the sector headed into the downturn.
“We have distressed sellers out there having to drill wells where they have commitments,” Hart said in a recent interview with Proactive Investors.
“We can therefore jump into the race without having to run the first 23 miles of the marathon.”