ADM Energy Plc (LON:ADME) told investors that it is “well-positioned for a period of aggressive growth”, albeit the firm also noted the negative impact of project delays at the Aje field offshore Nigeria.
Following on from significant changes to its board last year, including the appointment of Nigerian oil specialist Osamede Okhomina, the company is now seeking to expand its asset portfolio.
It intends to leverage management’s extensive network of contacts across Africa and it has already identified a number of investment opportunities. Work is underway to assess possible investments at varying stages of the project cycle - including appraisal, development and producing assets.
ADM said that it is actively engaged in talks with a number of parties including potential local project partners, funding partners and offtake buyers.
The company said its main approach will be to option appraisal assets where oil and gas has already been discovered. It expects industry-wide divestment programmes, among oil majors, will open up assets comprising some 500,000 barrels of oil per day (bopd) of production for purchase by independent operators.
“For these deals to be financed, they will require local expertise, close relationships and experience of operating in the region,” ADM said.
It noted that large oil trading firms have become defacto financiers of many asset acquisitions, but said such buyers often struggle to find partners with the necessary credibility. Through its expansion plan, ADM also seeks to gain financial support with debt financing, and use its equity as transaction currency.
Looking forward to an exciting 2020
In a statement, Okhomina said that ADM’s management is looking forward to an exciting 2020 and they hope to have active deal flow to accelerate growth.
"I joined ADM because I have long recognised the value that could be created by structuring oil and gas opportunities through public markets,” Okhomina said. “The company has set out a clear strategy based on the strength of our existing asset base and our team's ability to identify additional undervalued investments.”
He added: “As a country, Nigeria represents a compelling value proposition for investors. It is a buyer's market, with many of the oil majors embarking on significant divestment programmes.
“This opens up an opportunity for companies that have the local contacts, experience and financing options to acquire assets at very attractive prices.”
Aje field performance and debt repayment
The investment company holds 5% of Aje, one part of the OML 113 licence area, where venture partners had aimed in 2020 to complete debt repayment and become both cash flow positive and profitable.
It had previously expected that the 12th crude lifting from Aje would enable the final debt repayment, but, now that plan has shifted so that it will be covered by a later t oil sale - the 14th lifting, slated for May.
The slippage in the repayment schedule comes amid weaker crude pricing and operational delays in 2019, which reduced output.
ADM noted that the Aje-5 well produced 890,203 barrels of oil in 2019, down from 1.2mln in 2018, due to downtime caused by routine maintenance of the floating production facility and also the need to upgrade significant equipment.
Production averaged 2,967 bopd, down from 3,100 bopd in 2018, and ADM’s share amounted to 148 barrels per day net.
Strategy to expand portfolio
Notwithstanding the reduced output, ADM said that it is presently embarking on a strategy to expand its portfolio of assets targeting other opportunities in Nigeria and West Africa.
It added that this work has necessitated an incremental increase in management and personnel costs.
ADM no longer expects to be cash-flow positive and profitable in 2020 as previously anticipated.
"In recent months, we have been very busy behind the scenes laying the groundwork to expand our investment portfolio,” said Okhomina,
“The company's existing stake in OML 113 provides a producing asset with a long-term licence in place and potentially significant near-term upside, subject to further investment, from which to build this larger portfolio.”
Okhomina added: "We already have several investment opportunities in consideration and are now forming strategic alliances to best structure and conclude them.
“With these elements in place, we are well-positioned for a period of aggressive growth. I am looking forward to being able to announce these deals in the near future and delivering on the company's vision."