Yesterday, for the first time in the company’s history, Aminex (LON:AEX) hosted its annual general meeting of shareholders in London. The Dublin and London listed oil and gas exploration and production company is popular amongst private investors, and the event was well attended in the pleasant surrounding of the Covent Garden Hotel on Monmouth Street. The company has a mixed portfolio of production and exploration assets including production in the USA, higher impact onshore exploration and offshore gas discoveries in Tanzania and some other interests including Egypt and North Korea.
The board were all in attendance and after all the formal resolutions were passed Brian Hall, Executive Chairman, and Michael Rego, Group Exploration Director, followed up with an in depth presentation and Q&A session of the company’s current operations. The presentation is available at the company website.
Likonde-1, Potential in Ruvuma, Tanzania
Aminex’s main higher impact exploration is focused on their onshore Tanzanian assets. “Suddenly after the eight years Aminex has been in Tanzania, there’s a lot of activity in the East African Coastal Margin” remarked Brian Hall. It’s an area that’s been growing in interest with the majors, which has accelerated after Anadarko (NYSE:APC) and Cove Energy’s Windjammer deep water discoveries in the Mozambique sector of the Ruvuma Basin since when British Gas (LON:BG), Exxon-Mobil (NYSE:XON) and Petrobras (NYSE:PZE) have all made plays to join ventures that intend to drill in the area.
Aminex’s licence, currently held 50:50 with the operator Tullow Oil Plc (LON:TLW) (although Solo Oil (LON:SOLO) intend to join) , essentially gives them exploration rights for the whole of the onshore Tanzanian side of the Ruvuma Basin. FTSE 100 listed Tullow Oil, fresh from huge success across the border in Uganda, as operator of the blocks, drilled the first well in Q1 2010 at Likonde-1 which did not prove commercial but nevertheless provided a range of useful data, in particular the confirmation of oil onshore in Tanzania. Michael Rego, the group exploration director remarked that “Likonde-1 is the first well in the area to indicate oil and opens up the possibility of a new oil region”.
The East African Margin had been previously limited to commercial gas discoveries predominantly offshore, but according to the company the Ruvuma onshore is regarded as a separate sub-basin. The presentation described how the first well, Likonde-1, was drilled over 500 metres further than originally planned on finding that some of the geological formations went deeper than expected to a total depth of 3,647 metres. At that point there was a “powerful gas influx at the base of the hole and unstable hole conditions”. The well has now been plugged and abandoned but there were very high gas readings in the well mud logs - indicating carbon chains from C1 to C5 (the length of the carbon molecules in the gas). “Generally the presence of C3 through C5 is taken as an indication that oil is present in the system.” remarked Rego.
The well discovered 820 feet of sands, spread over various geological formations and a good sealing cap rock to the potential prospects. In the case of Likonde-1, Rego believes the sealing rock had possibly been breached laterally. They are still analysing the various samples in the UK and are reprocessing the existing seismic data in conjunction with Tullow. Rego noted that “We are planning to agree a second well location once all the evaluation is complete, to probably be drilled at the very end of this year or early next year”.
Remarking on the cost of the drilling, Brian Hall stated that “This was Tullow’s first well in the area. The first well is always more expensive...Tullow tend to take the view that when they start drilling a well they want the entire toolbox there. Aminex would usually take the ‘if and when required view’ - if Aminex need a tool we’d bring it in, which for a frontier area is a risk - it can be very expensive to wait when time is money.” He then went on to commend both Tullow’s professionalism and on bringing the first well in within budget, and indeed noted that the need for an MDT tool vindicated Tullow’s approach to preparations.
Increased potential at Nyuni and Songo Songo licences, Tanzania
The company sees the twin PSA licences they hold offshore in Tanzania in the Nyuni area as becoming a substantial gas supply business through a potential ‘hub’ at Kiliwani North. They surround the producing Songo-Songo gas field which delivers commercially to the Tanzanian capital Dar es Salaam through a 200km pipeline. Brian Hall went on to describe how a recent independent evaluation of Aminex’s assets in the area by ISIS Petroleum Consultants has significantly increased company figures for gas in place at the P.mean level. “We don’t see Nyuni as an oil area - it’s a gas play”.
According to the presentation, contingent P.mean resource estimates at the wells drilled on Kiliwani North and Nyuni have been raised to over 250 billion cubic feet of gas, and their prospective resources across the whole licence (not yet proved by drilling) have been raised to over 2.2 trillion cubic feet. These figures by ISIS, are upgraded from those reported in the recent Annual Report having incorporated their interpretation of the 2009 seismic.
Brian Hall went on to say that they have discussed many routes to market for this gas, including a small LNG plant and compressed natural gas, but ultimately an extension to the pipeline from the Songas plant to industrial Dar es Salaam remains the logical route, although the upgrading of prospective and contingent resources has increased the viability of alternative options. Kiliwani North, being only 3km from the Songas processing plant that feeds into Dar can be the hub of Aminex’s entire ‘gas gathering business’ if only the operator can get final approval to expand their operation, which is now a stage that is close to being reached.
Frustration and the real story of the pipeline delays
The gas processing plant and pipelines that service the Songo-Songo field operated by Songas Ltd need to be expanded to take increased production both from Songo-Songo and other suppliers including Aminex. The industrial customers at the other end also want and need more gas, but there have been huge delays due to continuing negotiations between third parties impeding Aminex’s ability to bring their Tanzanian gas to market and monetise their assets.
The management were queried on the reason for the delays These negotiations have been ongoing for a long time, and the last sticking point seems to be the jurisdiction of any arbitration that may become required. Brian Hall is certain there will be a resolution but “putting a date on it is difficult”. It was also noted that cashflow from gas supply in Tanzania would be extremely helpful and that industrial gas prices in Dar were robust by comparison with those obtained in the USA.
Brian Hall was questioned on the story that Key Petroleum had put their West Songo Songo licence up for sale and he said it was something they had 'read about on the internet'. He then stated that putting their interests up for sale without notifying their partner would be very unusual and that Aminex have an operational committee meeting with Key today at which they are planning to seek clarification.
Texas & Louisiana, USA - potential in the Wilcox Sands
All the company’s current production comes from it’s US operations, predominantly from an old field at Shoats Creek, Louisiana and a 2008 discovery in Alta Loma, Texas. Current interest is centred around Shoats Creek where the company drilled a well in some of the shallower sands in Q1 . The results are ‘currently subject to a complex testing and completion programme’. There are essentially 3 plays at Shoats Creek, progressively deeper in the Frio, Cockfield and Wilcox sands. 3D seismic was shot in 2007-2008 which has allowed for a reinterpretation of the area.
According to the presentation, the Wilcox sand is a prolific producer in the region, but hasn’t been touched at Shoats Creek since 1988. At the time the operator plugged the hole without completing it for production, probably due to the low oil price, but they tagged the top of the Wilcox at a depth of 11,500 feet. The 3D seismic has transformed the knowledge of the field, and the company has acquired an extra 240 acres to the West to increase their share of the Wilcox. They are planning to test it later this year in Q3 as a joint effort with a neighbouring company. The option has been granted to Black Tip Petroleum to farm in to 50% of the licence of Shoats Creek while funding 100% of the drilling up to $9m which should mean the Wilcox is drilled initially without cash calls on Aminex.
$1.7m raised for for expansion in US
The Company announced yesterday that they had raised $1.7m to expand their US activity to participate in an exploration project by a major regional operator in Louisiana. When pressed to comment, Brian Hall apologised that he’s not at liberty to remark at this stage as the deal is still being negotiated.
The company recently signed an agreement with North Korea on the same day that the international press reported that North Korea was thought to have torpedoed a South Korean navy boat. Brian Hall remarked that “this is the first time I’ve had a deal literally torpedoed and blown out of the water - just very unfortunate timing”. The market barely moved on the news, and clearly isn’t giving the company any value for these assets, but on the other hand, he described the Korean East Sea as one of the ‘great underexplored areas of the world’ and sees the area as ‘something for the future’. The company is now in the process of receiving historic seismic and drilling data from previous operators including the Russians who were there in the late 1980s and the Australian company Beach Petroleum. Chosun Energy has recently signed in as their partner, although Aminex have been discussing oil prospects with the North Koreans for over 10 years and signed their first agreement back in 2004. Some investors have shown concern over Brian Hall’s willingness to deal with the North Koreans, but others believe it is this focus on frontier plays that has brought Aminex exploration licences over key assets ahead of larger outfits, as evidenced by the group’s current strength in Tanzania. Brian Hall noted “it is unlikely that we will ever drill a well there ourselves” and said that they were likely to bring in further partners in the future.
When asked about financing Hall remarked that the company have various calls on their funding and made it clear they would have to make some choices to do everything. “I can’t say we are cashed up to do everything we are trying to do”. Nevertheless, there are options to finance drilling by trading the asset portfolio, as has been done in both the recent farm-out to Solo Oil (LON:SOLO) in Ruvuma and the deal under discussion with Black Tip.
There were at least 25 shareholders at the meeting, and the mood was encouraging. Aminex appear pleased at the burgeoning major company interest in Tanzania which has served to validate their strategy and with Tullow Oil as operator at Ruvuma, their onshore exploration is in experienced hands. It is evident that the board are frustrated at the delays in monetising and expanding their offshore Tanzanian gas plays, and it seems more likely that the nearest term catalysts to the share price will be Wilcox drilling in Shoats Creek and perhaps the go-ahead for connecting Kiliwani North into the gas distribution system, as further drilling at Ruvuma seems likely to be in early 2011.