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Anglo African Oil & Gas plc: THE INVESTMENT CASE

Anglo African Oil undaunted over Tilapia opportunity as drilling set to resume

Two wells are already in small scale production but the new one, now called TLP-103c, will go down to 2,700m at target depth
Jack-up rig
Tilapia is 1.8km off the coast of the Republic of Congo

Oil exploration is art, not science, believes David Sefton, executive chairman of Anglo African Oil and Gas PLC (LON:AAOG).

He was reminded of the point earlier in the month when Anglo African had to redraw its drilling plans for the Tilapia field in the Republic of Congo.

READ: Anglo African Oil & Gas readies for well re-drill at Tilapia field

The drill hit what is called a ‘thief zone’ immediately after a very hard dolomite formation and the rig was in danger of sinking.

Swift action prevented that, and Anglo is looking at a re-start of the drilling some 100m away from a new pad.

Construction of this has already been completed with drilling again expected to take about 64 days from spud date.

Sefton says it was a reminder never to take anything for granted in oil exploration, but this does not affect the story at Tilapia.

Thief zone

“There is no way you can spot a thief zone from seismic” he says.

For the next hole, Anglo African will speed drill to 110-120m and put facilities in place to case the well as it goes down, though it might not need these.

Negotiations are underway with the contractor over the cost of the first well and the expense of moving and building a new drill pad.

One benefit of the new location is that the drill will be able to hit the sweet spot of any discovery more precisely, which will aid flow rates.

WATCH: Anglo African Oil & Gas close to re-spudding TLP 103 from new location

Two wells are already in small-scale production but the new one, now called TLP-103c, will go down to 2,700m at target depth and define the potential of the licence.

Anglo African holds a 56% working interest in Tilapia, which is currently pumping about 40 barrels per day from the shallow R1/R2 sands.

Republic of Congo state oil company SNPC holds the remaining 44% and also a production-sharing and joint operating agreement with Petro Kouilou (PK), Anglo African’s wholly- owned subsidiary.

Other operators nearby are already producing from the geological formations to be drilled.

Sefton remains upbeat about the opportunity but after the recent hiccough is being more cautious over the execution.

Opportunity intact

Below R1/R2 are the lower Mengo sands, where neighbouring fields have been producing 400-500 barrels daily from wells for some years.

A deeper exploration prospect lies in the Djeno interval, where the adjacent Minsala field produces at a rate of 5,000 bopd.

Finally, there is the relatively untested Vanji Horizon, though this is below target depth of 2,700m and might require additional funding.

Sefton, though, emphasises Anglo African is not a binary play dependent on a big find in the Djeno zone.

In the Mengo, which he believes is a relatively safe bet, careful optimisation might offer the opportunity eventually for between 8-10 wells producing about 400 barrels per day each.

As costs for adding additional wells would be low, cashflow break even for the field would be between 500-700 barrels in total at current crude prices of about US$80 per barrel.

Production of that magnitude, ie 3,200- 4,000 barrels a day, would make a ‘nicely profitable’ oil business.

Sefton, though, seems unlikely to settle for that.

'Big oil' background

His background includes various private equity firms, running a seismic business and as legal head for Russian oiler Lukoil’s overseas acquisition arm

James Berwick, meanwhile, held senior positions at Ophir Energy and Africa-focused Impact Energy, before the ex-Para and French Foreign Legionnaire was parachuted in as chief executive in January.

It’s not that hard to spot where a business run by two people with experience in acquiring assets and building billion-pound businesses might be headed, quips Sefton.

A good result from TLP-103c would expedite the process and grab the attention of some potentially heavyweight backers.

Anglo African raised £7.4mln at 8p per share in May to fund the costs of the drilling down to the Djeno level.

The shares took a knock on the well delay and at 9p, Anglo African is being valued at less than £15mln.

They were trading as high as 13p in August and given that the underlying story is unchanged should start to recover again once drilling resumes.

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