I am starting a new discussion thread on Aminex because, in my opinion, the company has transformed significantly since the appointment of Stuard Detmer (SD) as CEO in September 2011.
In particular, whilst previously the company had a global spread of assets (and we had separate threads covering each). SD has now decided to focus exclusively on Africa, and other assets will be progressively divested. With the East African margin now having been proven as a major gas province, and plans for major LNG facilities under development, offering a route to market, that casts a new light on the value of Aminex's East African assets.
NB, as moderator, I do not intend to permit discussion of hour by hour price moves or long debates about T.A. here. If anyone wishes to discuss those, I suggest that you start your own thread.
Readers can download a detailed article on Aminex's strategy, that I wrote after the May 2012 AGM. You will note that several of the "next events" mentioned then have now occurred or are well underway. I won't repeat the ground covered in that article here.
Let's begin with some maps from Aminex's latest presentation, published today. The first shows Aminex's acreage (the Nyuni and Ruvuma PSAs) in the context of recent discoveries:
Next we have some detail on the Ruvuma PSA:
Route to Market
Besides the likely future LNG developments, Aminex's Ruvuma PSA benefits from a major pipeline development that has just begun. This will run some 25km from the Ntorya disovery, thus providing an export route for domestic consumption.
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Valuation
Aminex's prospects look exciting: there are a lot of interesting and potentially transformative leads in the Nyuni and Ruvuma acreage, as can be seen from the recent resource report and presentation. That prospectivity, however, is underpinned by significant tangible assets:
US Assets
These are currently being sold. It is hard to judge what they might fetch, but US producing assets are often sold on the basis of existing production. A typical/conservative figure is US$50,000 per boepd (allowing for a significant gas element).
Aminex's 2011 production was 130,250 boe, i.e. 357 boepd. That gives an estimated value of ~$18m (£11m).
Tanzanian Gas
The resource report shows discovered GIIP of 178*75% for Ntorya plus 45*70% for KN-1 = 165bcf net to Aminex.
We can value that gas by comparison to Cove Energy (LON:COV) 's offshore Mozambique discoveries. Cove's latest presentation (slide 8) shows that they have discovered ~70*8.5% = 6tcf of GIIP. Cove's market cap. is currently £1,358m. So that yields a value of £0.23m per bcf - i.e. £38m
So, that gives a reasonable value for known assets of £49m. This allows nothing for cash (level unknown at present), the Amossco service company or, of course, upside prospectivity.
Let the debate begin...
Disclaimer:
The author may hold shares in this company, all opinions are his own and you should check any statements that appear factual and not rely on them before making an investment decision. The author is NOT a qualified analyst nor authorised to give investment advice. Whilst the author is a director of ShareSoc, all views expressed are entirely his own and not necessarily those of ShareSoc.
Aminex PLC is engaged in the exploration for, and the development and production of oil and gas reserves. Its principal area of activities includes the United States, East Africa, North Africa and North Korea. Its segments include Producing Oil and Gas Properties, Exploration Activities and Oilfield Services and Supplies. The Company's licenses in Tanzania include Nyuni PSA, Kiliwani North and Ruvuma PSA. During the year ended December 31, 2010, it drilled three wells, one in Tanzania and two in the United States. As of December 31, 2010, the Company held leases at Shoats Creek covering approximately 2,100 acres. Aminex Oilfield Services & Supply Company (AMOSSCO), its wholly owned subsidiary, provides logistics services to oil industry and sources oilfield equipment and consumables to international oil companies. In March 2012, it announced that Aminex USA, Inc. its subsidiary, completed agreements to sell leases and other assets consisting of the Somerset Field in Texas. more »
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Saw SD present at Oilbarrel today and spoke to him and Mike Rego (MR) afterwards. It was illuminating and I highlight key points (not already mentioned previously) below, my thoughts in italics:
In the Q&A I asked SD about his key criteria for acqusitions. He stated that an extensive list had been prepared by advisers and studied as part of the earlier strategic review. Selection criteria were:
SD is currently looking at two potential acquisitions.
I know some Aminex investors question the rationale for making acquisitions. I will post separately a hypothetical scenario, which explains why I back SD's strategy.
After the meeting, I confirmed that SD does intend to RNS the pressure and sample analysis results from Ntorya-1, when available. I also had a more extensive discussion with MR about what had been learnt from recent wells.
The short answer was "a lot". The paucity of earlier drilling and coarsely spaced/old sesimic meant that "controls" on the seismic (i.e. a basis for matching seismic signatures to particular rocks) were weak. MR said that the lithography at Ntorya differed from Likonde, so it is not surprising that assuming they would be similar resulted in a misinterpretation of the Ntorya seismic data. It is only by drilling Ntorya that this could be determined. The combination of new, better sesimic and knowledge of Ntorya and Likonde results should improve the accuracy of interpretation. The more wells that are drilled, the lower the likelihood of misinterpretation and the more accurately reservoir sizes can be estimated.
I have read criticisms of Aminex's technical team elsewhere. I see little basis for those criticisms and SD stated at the AGM that he was impressed by the ability of the team when he joined the company. IMO the team has been hampered by having to work on "a shoestring budget" in the past and by not being able to focus on the most exciting prospects. That was a consequence of a lack of interest by bigger players and investors in East Africa, which has now changed dramatically! This resulted in Brian having to be very careful with Aminex's resources. SD is now able to take the risk of focussing entirely on East Africa and "throwing the kitchen sink at it", starting with a comprehensive seismic programme that should highlight the prospectivity of our acreage much more accurately than was possible before, especially when combined with results of recent drilling. I have little doubt that MR would have loved to have had the data that the new seismic should provide many years ago but Brian, for understandable reasons, just wasn't able to authorise expenditure on the necessary scale.
Cheers,
Mark
In reply to thebuffoon, post #6
Yes... SD did give the impression today that he fully intends to commercialise Ntorya directly (at least). I guess after farmdown (which would help with development as well explo CAPEX).
Revenue of 30% (after farmdown) x ((200mmscf x $2 netback/mscf) + 1,390bopd x $75 netback (for condensate)) = ~$150,000/day = ~$54m p.a. would certainly improve the company's ability to fund further explo, and its value! Plus, say, another 70%x 20mmscf x$2 netback = $10m p.a. for KN-1.
As promised here is why I like SD's acquisition strategy.
As things currently stand the possible rate of meaningful newsflow is limited by the time it takes to a) mobilise equipment, b) conduct seismic programmes; c) interpret results d) mobilise drilling rigs; e) drill; f) analyse drilling results - "rinse and repeat" from steps a) or d). There is little Aminex can do to compress the time each of these stages takes - and we know from past experience and current plans how long each of these stages is. NB: AFAICS Aminex's technical team is only required to work intensively during stages c) and f) - the rest of the time, they're mainly waiting for external contractors to become available and/or to do their work and/or for govt. permitting.
For that reason, plus the fact that partnering with other players in farm-out/farm-in deals can spread the workload, I am not particularly worried about Aminex's team being overstretched if interests in new acreage were acquired.
It is that slow pace of newsflow (and some disappointments) that has really caused Aminex's share price to drift downwards in the past. Clearly SD will be much more able to maintain (and increase!) investor interest if the rate of newsflow could be increased - as long as most of the newsflow turns out to be positive! That, in turn, should lead to a much more satisfactory SP performance. Rather than the vicious circle the company has been in, where that declining SP has made it harder to raise funds without causing undue dilution, we can enter a virtuous one, where a rising SP makes raising new funds (if and when required) ever easier, without causing excessive dilution. See Cove's history for an illustration of how that works: repeated fundraisings but at ever increasing SPs and ultimately ALL longer term investors ending up "quids in".
So, what about the dilutive impact of making acquisitions? At first hearing it sounds like a crazy idea considering how little cash Aminex currently has. Well, consider this hypothetical example:
Let's suppose SD can find an underfunded AIM-listed (or private) explorer lacking resources to drill well-identified prospects equivalent to another 5tcf (unrisked GIIP). Further, let's suppose he can reach agreement to farm-in for 35% in exchange for offering a free carry on one well (and then paying pro-rata for further wells). And let's suppose that a two well programme is planned for 2013.
Now let's suppose he can also farm down our Ruvuma interest to 35% (i.e. farm out 40%) in exchange for two free carried wells in 2013. Instead of having a two-well programme in 2013, we've leapt to a much more exciting and well-diversified four-well programme in 2013. That would be more attractive not only to us existing shareholders but also to prospective investors... and this is where we "leverage our full listing": M.E. or Chinese investors (as well as many British institutions) may well be much more prepared to invest in a fully listed company than an AIM listed one. Using Aminex's full listing SD can access sources of finance that are not available to AIM listed companies.
So, what are the implications for dilution? As things stand, we have 75%x 5.75tcf + 70% x 5.67tcf of prospective resources = 8.3tcf and ~811m share in issue - but no financial means of conducting the two well drilling programme currently planned. Let's assume wells cost an average of US$15m each.
After the hypothetical deals I set out above, we'd have 35% x 5.75tcf + 70% x 5.67tcf + 35% x 5tcf (the last figure being the new acquisition) = 7.73tcf prospective - so not much dilution at all. BUT we now have two wells free-carried and need to raise funds to pay for 100% x 1 well + 35% x 1 well = ~$20m to have our FOUR well programme fully funded for 2013. If SD can raise that cash @ 6p/share that would mean issuing 214m new shares. I could live with that degree of dilution if it gives us a good chance of discovering 1tcf+, which 4 wells over the right acreage easily could. And that prospect easily justifies the"asking price" of 6p/share!
Rather than risking the entire company on one or two wells (which is effectively where we were in September last year), we now have a much safer gamble, with four cracks of the whip.
Of course this is entirely hyprothetical. We'll all have to reserve judgement until we know what deals SD is actually able to do. But it does clearly show how the strategy he proposes could be very beneficial to current shareholders. As each deal is announced it needs to be viewed in the context of the overall strategy,
Cheers,
Mark
In reply to marben100, post #7
Many thanks Mark, shame I couldn't get there.
I look forward to your views on acquisitions when you get a chance to post them. I tend towards the sceptics camp thereat present. One critical aspect, which at present is completely opaque to me is timescale. I can see that a time may well come where acquisitions would make sense, my concern is that now they really do seem to have something coming together in Tanz it's got to be the top priority to work on that. Anything that might reduce resources available (even for contingencies) and/or serious management time would be greeted with a great deal of suspicion by me at present. I'm open to counter arguments though, and I might be convinced!
In reply to peterg, post #10
Thanks peterg - see #9 above for my views on acquisitons.
In reply to marben100, post #9
Hi Mark,
Not sure how my post timed 11:17 ends up as post 10 while yours' posted 11:19 and 12:19 become posts 8 and 9. I suspect favouritism! :-)
Yes, I can entirely understand your hypothetical scenario. It could work. For me the key is for AEX to restore a degree of reputation amongst investors, which has certainly been undermined over the past couple of years, even if I don't fully agree with many of the reasons often given. That is, in my view a necessary precursor to a reasonable valuation being given for current and any future prospects/assets. Clearly that process has begun, and I expect it to continue, I see the outlook in Tanz as being very positive (though, as you say, it will take time to fully crystallise) but just as the seismic/analysis/drill cycle can't be rushed, reputation and market sentiment can't either. And a fuller valuation is an essential prerequisite for the sort of scenario you envisage, without it we are likely to look at excessive dilution and a market that fails to give decent valuation for any new prospects bought into.
I'm entirely in favour of the general approach, farm down and spread smaller, but significant, interests over a number of prospects, and so getting a more regular news flow, and getting statistics on our side. It all makes sense, but the trick is to do it in a way that doesn't leave the company diluted or cash strapped. Which is where my worries about trying to move this all forward too fast come in. If it's done sensibly, and accepting that it can't be rushed, great, but I'm afraid CEOs who say they are in a hurry tend to throw up all sorts of warning signals to me. Having a rather large stake in AEX I'm hoping it proves to be a measured hurry not a rush!
Peter
I've long thought that Aminex was taking on too many projects, overstretching itself for its financial capability. Arguably Brian Hall should have rationalised the portfolio, and the initial news that SD intends to do that sounded good. I think the company should focus on delivering cash flow, ie focussing more on development expenditure. There's plenty of value in the existing portfolio, it just needs to be harvested. In this context, I don't see an acquisition strategy as a good idea, particularly as it sounds as if it comprises early-stage explo licences in E Africa where lack of infrastructure means each well is relatively costly. The constraint is not technical team members time, it's cash. IMO more acquisitions would be fine, AFTER Ntorya and KN are delivering actual gas sales revenue, but not before. The limited financial capital the company currently has should IMO be spent on plumbing in Ntorya and KN without share issue/dilution. I believe it would be a better way forward for the proceeds of selling the US assets to be spent in 2012-2014 on development expenditure, and if Ntorya and KN could deliver the sort of gas flows commercially that are discussed, the SP by 2014 might be 20-30p which would be a much better starting point for share-issue funded expansion.
What might have been a new era with a new Chief Exec rationalising the portfolio is starting to sound worryingly like just more dilutive-share-issue-funded expansion, the shares being issued at a discount to what hopeful shareholders believe to be their fair value. The current discount of the shares to broker's calculations of fair value seems due to shortage of cash leading inevitably to more share issues - the way to break out of the negative sentiment would be to plumb in the gas fields to deliver cash inflow. Building a larger empire based on shares issued at the current sort of level might suit SD, but it doesn't obviously suit shareholders.
Peter, wasn't your 11.17 post on a later day than Mark's?
In reply to sirlurkalot, post #13
SirL,
We'll have to agree to disagree.
The problem is that that is not dissimilar to the strategy BH pursued. We saw what the problem was with that strategy: the timescale to develop commercial production is highly uncertain and almost completely outside of Aminex's control. If all goes according to current plans - and that's a huge if - we might see first commercial gas deliver mid-2014 - some two years hence.
So, what happens in the meantime? Well, Aminex could simply farm down Ruvuma and get a well or two drilled in 2013. If one of those hits really well, then everything will be hunky dory and the good ship Aminex and its investors sail off gaily into the sunset., That was the strategy Brian relied upon, and what happened? The company didn't get lucky, with disastrous consequences.
SD clearly intends to be more aggressive and materially alter the pace of Aminex's drilling. As long as the additional acreage being drilled is equally prospective and equally (or better) surveyed, clearly that substantailly increases the overall CoS of making a transformative find. If the CoS per well is 25% and the CoS is independent for each well, then the overall CoS for two wells is 1-0.75^2 = 44% - a coin flip. For four well that figures rises to 1-0.75^4 = 68% - 2:1 on.
Now the key, which I expect we'll agree on, is the precise nature of the deals he is able to do. I will reserve judgement until we see the announcements. However, my own preference is to have a smaller stake in a larger explorer with plenty of opportunities to add value, than to have a larger stake in a smaller, undercapitalised explorer, with more risk. The big question is how well SD can effect his stated intention of transforming Aminex from the latter into the former. IMO his plan is sound. The crux, however, is in the execution. We should have a much clearer view by the end of this year. Until there is more clarity I remain cautious.
See this post for an up to date interview with SD, further elucidating and confirming his near-term plans.
Regards,
Mark
Mark,
The spreading risk by having say two wells on 35% licences rather than one on a 70% licence I have no dispute with, and if that were the main aspect of SD's strategy that would be IMO fine. It's the references to quintupling the mkt cap of Aminex via newly issued shares (at I assume near the current SP) and investing the cash recd into more E African explo that I have a problem with.
"my own preference is to have a smaller stake in a larger explorer with plenty of opportunities to add value, than to have a larger stake in a smaller, undercapitalised explorer, with more risk"
the plenty of opps to add value I have no problem with as above, and the undercapitalised I'd deal with by getting cash flow going. Its the issuing more shares at this low level I don't think is in current shareholders interest.
Is there any reason the Ntorya 3m gas zone cannot be piped to the Mnazi Bay power station now?
In reply to sirlurkalot, post #15
SirL,
If that were the case, I'd agree with you - but it's not. Yes,some new shares will be issued, but I'll be extremely disappointed if the number in issue is quintupled, simply to achieve the desired market. cap. As well as issuing shares, what I understand SD has in mind is:
There is no way of doing that in less than two years from now, given the timescales for the crucial pipeline infrastructure. BH has been trying for the last four. That approach simply doesn't cut the mustard for me nor, clearly, for SD.
As I said before, let's see what deals he actually does before making a judgement. If all he does is issue gazillions of shares @ 5p, I won't be a happy bunny either.
A disappointing announcement here: http://www.meagheroil.com/
I'd like some clarity on the planned field work and when this is likely to occur.
Cheers,
Mark
Hi Mark
Not sure what to make of it currently, especially after last weeks presentation - would have it been known then ?
However - if you look at this link it actually says 'MARKETING PROCESS DELAYED TO LATER IN 2012
SIGNIFICANT FIELD WORK IS IN PROGRESS' rather than 'PLANNED'
http://www.meagheroil.com/resources/project/AMINEX%20USA,%20INC.%20SHOATS%20CREEK%20FIELD/
Reo
In reply to REO100, post #18
Hmmm.... well, the sooner we can dump these US properties and focus on the much bigger prizes in Africa, the better. Obviously, the company's got to do whatever it reasonably can to achieve the best price.
Polo Resources (LON:POL) final results, released just now, contain a snippet of interest to Aminex investors:
Signet's licences adjoin Aminex's Ruvuma offshore portion (IIRC - their website seems to have gone away). Their 3D data may be relevant to Aminex's interests.
Signet is currently a private company:
Mark
Bit slow, but I've only just noticed another announcement from Polo this morning re Signet:
Activa latest report out today has this snippet on the USA assets
The Loma Field water disposal well has
been drilled (depth: 3,500 feet) and we
are now working on finishing the surface
facilities. This more efficient method of
water disposal will allow us to increase
production rates on this well from late
December 2012. With natural gas prices
now at higher levels this makes good
sense and is expected to have a
positive impact on our revenues in 2013.
sonlite update, production increase
RPT DATE 10/01/2012, but is this the production figures for Sept or Oct? bearing in mind that the OM-10 well was worked over in Sept.
http://sonlite.dnr.state.la.us/sundown/cart_prod/cart_con_wellinfo2?p_wsn=241566
this from their Nov IMS
"At Shoats Creek, the OM 10-1 was worked over in September and the two lowest zones, originally tested in 2010, were put on production. Oil and gas production from the well has been increasing as the well continues to unload a combination of formation water, the heavy brine used to workover the well and residuary frac water from the lower zones."
You might have to rename this thread Mark! :(
http://www.investegate.co.uk/aminex-plc-(aex)/rns/board-change/201301220700100460W/
yes, back to the old Aminex then !
In reply to kenobi, post #25
yes, back to the old Aminex then !
Well, is it?
It seems to me that SD had two main strands to his aims in Sept 2011. The fairly down to earth stuff about getting rid of peripheral assets and concentrating on Tanzania, while farming down to smaller levels on holdings there, and the more contentious stuff about growing by taking over other small African centered E&Ps, and "leveraging on the full listing", whatever that meant. I think a lot of people were pretty sceptical about the 2nd part, I certainly was.
But phase 1 looks well on the way, and may well be completed in the next couple of months, with farmouts in Tanzania and US sales. So perhaps he can see that he's done that part of the job and the more grandiose schemes were never going to happen, so time to move on? Or there have been tensions on the board about the more contentius part of the package? EIther way AEX is now in a more focussed and stronger position that in Sept 2011.
JT thinks it's "brilliant news". I'm not sure I go that far, sudden loss fo a CEO is never that, but I don't see AEX's prospects going forward as any less good than they were yesterday.