The almost unseemly scramble by wildcatters and majors alike suggests Africa is the go-to area for oil and gas.
Hoping to emulate the trio’s accomplishments is AIM newcomer SacOil (LON:SAC, JSE:SAC), although chief executive Robin Vela describes the company as “Energy Africa Mark II’.
“We’d like to replicate that model,” he told Proactive Investors.
Energy Africa was bought by Tullow back in 2004 for US$570 million, but its assets are the foundation stone on which the FTSE 100 giant’s achievements are built.
As part of that deal it acquired the hugely promising Lake Albert project in Uganda, which has created the latest buzz around Tullow and turned the region a magnet for the big boys.
Over the border in the Democratic Republic of Congo, but very much within AlbertineGraben basin that has yielded some elephantine oil discoveries, South Africa-based SacOil has acquired a 3,177 kilometre licence area simply named Block III.
The success of Tullow in Uganda suggest Block III is highly prospective for oil – a fact borne out by SacOil’s partnership with French major Total, which has farmed in for 60 per cent.
The total value of the deal is US$300 million, says SacOil. It will receive US$61.5 million staged over the next five years, of which US$7.5 million has already been paid. It also leaves the company with a 12.5 per cent interest in the licence.
As important, SacOil receives a free carry on all the exploration work right up to the final investment decision phase – in other words the point at which it is decided whether Block III is commercially viable and bank debt financeable.
Under the terms of the fairly rigid timetable it has with Total, this final decision phase will occur in around three years, which means we could see first oil from Block III in five years.
SacOil owns its stake in the oil licence via a DRC company called Semliki, which is half owned by a consortium of local business people.
The tie-up with Total is hugely beneficial for SacOil on a number of levels. First, it is a massive vindication of the quality of the asset.
“Total wouldn’t come in with us if the asset wasn’t going to move the needle for them”, Vela said.
“It also helps mitigate the exploration, exploitation and expropriation risks. Total bring a lot more to the table than they take away,” he explains.
“This includes foreign direct investment, validation of the acreage, expedition of time to production, a commercialisation route given its access to infrastructure in the area and the introduction of industry norms to the country.
“They are experienced in the continent, so investors can sleep at night now Block III is being operated by a world class operator.”
The competent person’s report talks of a contingent resource to SacOil of around 24 million barrels of oil, which could be worth as much as US$125 million based on recent deals in the area.
Not that the value of Block III, or the potential of SacOil’s Nigerian assets are reflected in the current rock bottom share price.
It has tumbled as the company, which has a listing on the South African exchange, took a secondary quote on AIM in April.
Vela believes South African investors panicked when the keenly-anticipated London listing didn’t immediately deliver the anticipated uplift in the share price.
“We came onto AIM because we recognised, even though we had significant support in the South African market, South Africa doesn’t understand oil and gas,” Vela explained.
“That has been shown up in the recent fall in the share price. (South African) investors were looking for a guide from AIM when we came across here to list.
“But because we didn’t do a placing of shares there was never that reference point. The idea was to fast-track, reinforce the board, get analysts to write about the stock so more people could understand the underlying value.
“That process will eventually see itself through, but we have a bit of problem here as the South African investors are thinking London hasn’t taken to the shares. What they don’t realise is there is zero liquidity at the moment on AIM.”
Rational analysis suggest the shares are worth many multiples of their current value, and the competent persons report “speaks to a share price of 3.70 rand”, or the equivalent of 34 pence, Vela says. The current price is 7.5 pence.
Included in that valuation are the Nigeria assets, which we have barely touched on so far.
The company owns a 20 per cent stake in licence areas OPL 233 in the Niger Delta and 281, which is on dry land. Its local partner and majority shareholder in the Nigeria project is London-based Energy Equity Ventures.
If Block III in the DRC offers investors the blue-sky exploration opportunity, then Nigeria provides the very real prospect of production 18 months to two years down the line.
“These assets aren’t exploration, they are near-production and appraisal assets which have been drilled, have oil discoveries and have been logged,” Vela says.
“We aim to fast-track these assets by potentially re-entering the existing well, flowing the oil and booking the reserves. This would then enable us to reserve-base lend against them.”
Vela says OPL 281 will cost around US25 million to bring into production at an estimated 30,000 barrels a day, while the partners will spend the same amount on OPL 233, which it is hoped will flow at 10,000 barrels a day.
The budget for the latter will also pay for a fairly comprehensive seismic survey on the area. “We’ve got 100 foot of net pay oil, but we haven’t flowed it yet. The risk is that we just re-enter the well and can’t flow it hence our desire to carry out a prior confirmatory seismic exercise before so doing.”
Vela had hoped to add production assets to the portfolio. However the current share price makes fundraising difficult.
Even so he and his team are part way to turning SacOil into a regional champion along the lines of Energy Africa.
SacOil has even recruited John Bentley, the founding chief executive of EA, as a non-executive director and more recently it recruited Jan Maier, former Tullow exploration manager, as chief operating officer.
“Ours is a capital growth play that has blue-sky exploration acreage and also near-production and production acreage,” Vela says.
“We are not saying we are going to find the next big thing in Africa. That’s not our skill set. That’s not where we value add.
“Our skill set is going into addresses that have proved to be highly prospective and acquiring acreage. We have demonstrated we have, as a validated South African based upstream company, a competitive advantage at the point of entry.”