Half Year Report
26 September 2017
Anglo African Oil & Gas plc, an independent oil and gas developer, is pleased to announce its results for the six months ended 30 June 2017.
The full results are available to
- Admission to AIM and £10 million equity capital raise to fund multi-well work programme to scale up production at the producing Tilapia oil field, Republic of the Congo
- Acquired 49% of the shares in Petro Kouilou SA, which owns a 56% interest in Tilapia, with the 44% balance held by the SNPC, the Congolese NOC
- Completed the acquisition of the outstanding shares in Petro Kouilou to secure AAOG's 56% interest in Tilapia post-period end
- Tilapia represents a low-risk development play (R1, R2 and Mengo Sands Horizons) with exploration potential (Djeno Sands Horizon)
- R1/R2 Sands - currently producing at Tilapia
- Mengo Sands Horizon - an undeveloped reservoir from which wells on neighbouring fields are producing at rates of 200 - 800 bopd
- Djeno Sands Horizon - a deeper exploration prospect from which adjacent wells are producing approximately 5,000 bopd
- Cash in hand at 25 September stands in excess of $4.1m
- Drilling of the TLP-103 well fully funded in accordance with current licence terms - AAOG share of remaining budgeted cost is approximately $2m
- Appointment of Alain Guiraud, experienced drilling manager, to lead the drilling of TLP-103, post-period end
Executive Chairman's letter
At the time of our IPO in March 2017, we stated that AAOG was bringing private-equity capital discipline to the AIM oil and gas sector. By this we meant a tight control over costs to ensure as much of the £10 million we raised at the time of our Admission from blue-chip institutions and other valued investors was invested in a defined work programme at the Tilapia oil field in the Republic of the Congo. This is focused on scaling up production from proven horizons and an existing discovery, as well as testing a potential payzone that is known to be prolific on neighbouring fields. In keeping with the private-equity template, management's remuneration, which is based on ambitious production hurdles being cleared, is tied to success out in the field.
Management's willingness to sign-up to production targets is testament to our confidence in the Company's core asset. Following the two-stage acquisition of a 100% interest in Petro Kouilou SA during H1 and post period end, AAOG owns 56% of Tilapia with the remaining 44% held by SNPC. Tilapia, which is located in the prolific Lower Congo Basin, offers the attractive combination of low-cost development potential with high-impact exploration. Aside from the currently producing R1/R2 sands, there is an undeveloped discovery in the lower Mengo sands which has been assigned gross contingent resources of 8.1m barrels, and a deeper exploration prospect with gross prospective resources of 58.4m barrels in the Djeno interval from which the adjacent Minsala field produces 5,000 bopd.
Given the presence of multiple horizons at various stages of development, together with being located close to billion-barrel fields including the ENI-operated Litchendjili, we rate Tilapia a low-risk opportunity to generate material cash flows. In our view, realising the full potential of the producing R1/R2 reservoirs and monetising the discovery in the Mengo Sands discovery from which neighbouring fields are producing at rates of hundreds of barrels of oil a day per well, will generate significant value for shareholders.
At the time of our Admission, we detailed a 12-month development programme initially targeting the existing producing payzones. During the period, we commenced the workover of two existing wells, TLP-101 and TLP-102. Initial results at TLP-101 saw production increase 50% to 48 bopd from 32 bopd. We believe there is further upside as significant quantities of detritus material were discovered in the well which could be inhibiting production. The entire flow lines between the wellhead and the separator are due to be replaced shortly to remove this material ahead of the installation of a pump. Once completed, we expect to see a further increase in TLP-101's production. Meanwhile, testing of the R2 reservoir in TLP-102 confirmed the presence of recoverable hydrocarbons, though the well did not flow after reperforation. A mechanical intervention is planned to bring TLP-102 into production using the rig that will drill TLP-103, a new multi-horizon well, which will target production from the R1, R2 sands and test the Mengo discovery and the Djeno Sands.
While TLP 101 and 102 alone have the potential to increase production to between 185 and 250 bopd and see AAOG achieve operating breakeven at low oil prices, success at TLP-103 would be transformational. Not only would we expect to see the R1, R2 sands and the Mengo discovery drive company production to ~750 bopd, it would also open up the Djeno as a new play on the licence. With such a huge prize on offer, we are keen to have the best equipment to do the job. As previously announced, our favoured rig is currently under contract with a major international oil company operating nearby. After a full inspection, a number of technical adjustments are being made to the rig, which will not be completed until mid-October. The rig will likely not be operational at its current site before November 2017 and, as a result, it will not be available to AAOG before mid-December at the earliest. Having originally scheduled drilling TLP-103 in August/September 2017, the delay is frustrating. It does mean, however, that we will drill what we believe has the potential to be a company-making well using a rig that will have passed the standards of a blue-chip operator, and importantly will have been tried and tested in the field.
I want to be clear that we are fully funded to drill the new TLP-103 well in accordance with current licence terms, under which 56% of the cost is met by AAOG and 44% by SNPC. Our cash position was £5.09m at period end. Our expenditure since IPO reflects the acquisition of the shares in Petro Kouilou SA, the gross cost of the workovers undertaken at TLP-101 and TLP-102, the general and administrative costs and listing costs.
We currently hold in excess of $4.1m (£3.25m) cash in hand, which partly reflects the gross acquisition cost of certain long lead items for the drilling of TLP-103, a share of which is recoverable from our partner, SNPC.
As shareholders will be aware, we have recently made some changes to the operations team. This was based on a careful analysis of operational performance to date at TLP-101 and TLP-102. Equally, we are aware that we need to ensure that the team in place to drill TLP-103 has the requisite skill set and in close co-operation with Gerard Bourgoin, Directeur General of Petro Kouilou, we have appointed, at the Petro Kouilou level, an experienced drilling manager, Alain Guiraud, to lead the campaign. M Guiraud is a very experienced drilling manager with global experience. He has worked as Republic of Congo Country Manager for Caroil and then from 2011 to 2014 for SFP, the drilling subsidiary of SNPC, as first Operations Manager and then General Manager. He also worked in the country earlier in his career for both SPIE and Maurel et Prom. He brings a wealth of experience from which the company can benefit. Ultimately, the current purpose of the Company is to drill TLP 103 and demonstrate the full value of the Tilapia asset. We are committed to achieving this as soon as possible.
Much has been achieved since our Admission to AIM in March. We have completed the acquisition of a 56% interest in Tilapia, commenced the workover of existing wells to increase production, and we have advanced plans to drill a potentially transformational well. Given that we have selected a rig which will be "bedded down" by a world-class operator prior to delivery, timings have slipped. Despite this, the value inherent in Tilapia has not changed. Tilapia continues to be the low cost / low risk development opportunity and high-impact exploration play that we detailed in the Admission Document. It is located in a prolific hydrocarbon region close to excellent infrastructure and markets.
AAOG continues to have a strong balance sheet and sufficient capital to fund the TLP 103 well in accordance with the terms of the licence agreement. As of today, we have in excess of $4.1 million cash in hand, having pre-paid approximately $700,000 of drilling costs. AAOG's share of the remaining budgeted cost for drilling TLP 103 is approximately $2 million, with a contingency of a further $700,000 needed only if the Djeno is unproven and we therefore complete the well for production from the Mengo. We are also owed approximately $300,000 from SNPC for its share of the pre-paid costs. The company continues to tightly manage other costs, and management remain incentivised to significantly grow production. With this in mind, we are keen for drilling operations to commence at the TLP 103 well as soon as it is practicable to do so, as we look to build a highly cash generative producer and I look forward to updating you on the results of the drilling.
25 September 2017
For further information please visit www.aaog.com or contact:
|Anglo African Oil & Gas plc||Tel: c/o St Brides Partners
+44 20 7236 1177
|David Sefton, Executive Chairman|
|Alex MacDonald, Chief Executive|
|finnCap Ltd (Nominated Adviser and Broker)||Tel: +44 20 7220 0500|
|Christopher Raggett, Giles Rolls, Anthony Adams (Corporate Finance)|
|Emily Morris (Corporate Broking)|
|St Brides Partners (Financial PR)||Tel: +44 20 7236 1177|
|Frank Buhagiar, Olivia Vita|
The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.