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Source: SacOil Holding & FirstEnergy Capital Newsflow - Work Programme Progress Across Multi Jurisdictions Newsflow will be primarily driven by progress primarily in Nigeria where the Company plans an Ocean Bottom Cable (OBC) 3D seismic survey on Block OPL233 commencing in 4Q12 that will be acquired over specific zones to better quantify resource sizes. In the DRC operator TOTAL has completed an aero gravity survey undertaken over the entire block that will be followed up with additional 2D seismic in the coming months. We consider that the most important catalyst in the near term will be ratification of both OPL233 and OPL281 in the coming months and certainly before 2012 year-end. We also note that with an impending timeline to FID for TOTAL in DRC, this could lead to an accelerated exploration timeline that would include possible exploration well catalysts. We expect a 2D seismic programme to commence at the start of the next weather window anticipated for the start of December 2012 with results expected during 1Q13
Up 13%
stop flooding the board !!!
Acquisition Metrics Underpin African Junior Credentials In a comparison of acquisition metrics for regional players we highlight SacOil’s ability to leverage off its African credentials to secure f irst mover entry to acreage. This is highlighted against a comparison with established regional players comparing favourably for SacOil, that on licence approval will have secured its Nigerian assets for the equivalent of US$1.15/bbl and US$1.05/bbl for onshore and near shore acreage respectively. Of note Heritage Oil secured its Nigerian OML30 interests for US$2.5 bbl on the basis of Heritage’s most recent CPR, while Eland Oil & Gas (ELA LN) secured their interests in OML40 for an equivalent US$ 2.2/bbl based on 2P reserves. Although we recognise the resource scale is a determinant factor that is likely to increase the competitiveness for such assets. With the corporate focus remaining on first oil from offshore OPL233 overall group working interest proOnshore/Offshore Acquisition Metrics0.001.002.003.004.005.006.007.008.00Onshore 2P US$/bblRegional Onshore Acquisition MetricsSac Oil Acq offshore Costs $/bblSac Oil Acq onshore Costs $/bblSource : FirstEnergy CapitalSource : FirstEnergy C Source: FirstEnergy Capital, Oando Energy duction is expected to commence in the first year at slightly less than 2,000 bbl/d before OPL281 comes on line bringing total production to short of 8,000 bbl/d in 2014. Production on OPL281 is likely to be supported by water drive. These production output estimates are subject to a timely licence ratification
the survey will yield better guidance on prospective resources. Onshore Licence OPL281 - Existing Onshore Monetization Route In March 2011 SacOil secured a 20% working interest position in OPL281 from indigenous player Transcorp. The licence covering an area of 138 km2 is situated in the Niger Delta and in close proximity to the Forcados terminal (c. 25 km). Historically two vertical wells Ekoro and Obote have been drilled in 1967 and 1970 respectively and a TRACS independent CPR assigns gross unrisked contingent resources of 99.2 mmbbl with best case estimate of 14.5 mmbbl net to SacOil under the terms of the PSC. Under the farm-in terms all JV partners pay their respective capex share to first oil. The CPR did highlight some degree of uncertainty exists on the nature of the fluids encountered. However, the report distinguishes the propensity for the fluid to be oil rather than gas. Development scheme will resemble an oil facility barge mounted and two well head platforms and five producers across two phases drilling to 3,000 m to 3,200 m. A gross signature bonus of US$24.5 mm is levied on the block and SacOil will pay EER’s share which will be reimbursed from first production with a 25% uplift. To date US$12.5 mm has been paid with US$12 mm remaining subject to licence terms. A further US$3.75 mm (net to SacOil) will be paid to indigenous partner Transcorp on conversion to an OML together with a gross payment of US$5 mm on first production. Transcorp is the designated operator of the block and is expected to pay 60% of its share of the capex. The minimum work programme for phase 1 is likely to comprise of US$15 mm programme of 3D seismic reprocessing and one appraisal well commitment in addition to an extended well test that will generate early cash flow. However, this is likely to be clarified on licence ratification
HOIL LN/HOC CN) on OML30 and the recent listing of Eland Oil and Gas (ELA LN) on the AIM market that recently acquired OML40, another of Shell’s divested assets. Offshore Licence OPL233 - Material Resource Potential SacOil holds a 20% working interest in Block OPL233 covering an area of 126 km2 in the Niger Delta and in water depth of less than 30 ft. The block is immediately north of the 600 mmbbl Apoi f ield operated by Chevron. Formal award of the block is pending on the approval of the Nigerian government and is expected over the next six months. According to the independent TRACS report undertaken in 1Q11, the block currently holds 19 mmboe gross contingent resources with an equivalent 3.8 mmbbl net to SacOil. The Company will pay a gross US$8 mm signature bonus on the licence with EER repaying its 50% contribution across three tranches with a 25% uplift. A US$25 mm performance bond on behalf of partner Nigdel payable to NNPC, that carries EER through their respective share of the performance bond. This now permits the licence partners to proceed with the expected Ocean Bottom Cable (OBC) 3D survey on licence ratification and it is anticipated that results from
Nigeria - Monetizing Contingent Resources SacOil has maintained a presence in Nigeria since late 2010 when it successfully executed the first of two farm-in agreements in offshore licence OPL233 later added to by an interest in onshore asset OPL281. In both of these farm-in agreements the Company formed a JV with private entity Energy Equity Resources (EER). The Company’s intent is to focus on appraisal and development activities on onshore Block OPL281. SacOil operates in the country along with indigenous partners Nigdel (OPL233) and Transcorp (OPL 281). The Company’s interest in seeking developed and undeveloped assets in Nigeria is underscored by Nigeria’s relatively low development costs, access to existing infrastructure, presenting a fast time to monetization and at realized prices trading close to Brent, if not commanding a premium. Interest levels in the region have been bolstered by the recent entry of Heritage Oil
was encountered in that region of Uganda only. The PSC was ratified in 2007 with work programmes structured around five exploration phases with a licence duration until 2035. In 2012 the Company secured presidential approval for a farm-down of 60% interest to TOTAL. The minimum work commitment comprises of seismic acquisition and an estimated two exploration wells for the current phase. The estimated expenditure for this programme is US$70 mm to FID. However, we consider that with an initial work programme of gravity and seismic acquisition programme underway estimated at US$30 mm, we anticipate that the spend will be much more and we estimate that for the purposes of the valuation, the spend could be closer to US$100 mm. Furthermore, under the farm-in to TOTAL, the supermajor has three years from March 2011 to reach FID on the block. SacOil is only required to contribute to funding on the block from FID. The discovery map herein highlights the estimated sediment thickness deepening to the south and from east to west. A recent gravity area magnetic survey completed in September highlighted the potential for similarities to Uganda. Of note TOTAL operates Block 1 in Uganda and we consider that SacOil will benefit from TOTAL’s regional expertise that is directly applicable to DRC
Acquisition of the gravity survey map in September 2012 could highlight that sediment thickness is sufficient for the presence of source rocks, drawing similarities to the northern part of the acreage with Uganda. The independent CPR report highlights that of the wells drilled in the Albert Basin, Uganda, the Turaco discovery wells are the most significant, located only 10 km from Block III. The independent report raises the question of whether sufficient source rocks have been deposited to generate commercial hydrocarbons. From data published by Tullow, the top of the oil window is at 2,600 m, which should indicate that Block III has sufficient sedimentary thickness to allow for oil generation. Additionally, hydrocarbons can migrate from elsewhere from the deeper parts of the Albertine Graben into Block III. There is further concern on the presence of CO2 that was identified in the Turaco-3 well adjacent to Block III that amounted to a 80-90% component of CO2, highlighting commerciality issues on the discovery. However we note that given the extensive exploration work in the country, the presence of CO2
Block III DRC - Carried Through High Impact Exploration Through the Company’s subsidiary Semliki Energy, SacOil holds a net 12.5% interest in Block III, DRC, located to the west of Block III Uganda. The area straddles both the Lake Albert Basin in the north and the Semliki Basins to the south. The Company’s DRC block contains no seismic or well data and much of the geological understanding originates from analogues on the Ugandan side where an abundance of seismic, gravity and magnetic well data is available. A sample of the early wells highlights the depth of the wells from north to south and east to west. In 1Q11, TOTAL, farmed into the block, acquiring 60% interest from Semliki’s 85% interest for a consideration of US$15 mm bonus that included US$6 mm back costs and a further net payment of US$54 mm on both Final Investment Decision (FID) and first production. TOTAL’s interest in the block now stands at 66.6%. The DRC government has a 15% equity interest back-in. An independent resource report undertaken by Bayphase in early 2011 highlighted an unrisked STOIIP best estimate prospective resource potential of 1.52 bnbbl with a 1 in 5 geological chance of success
really strange this rise with brady in talks with eer, who have interests in same blocks nigeria
Assets - Surrounded by Existing Discoveries The Company operates in two principal Sub Saharan jurisdictions, Democratic Republic of Congo (DRC) and Nigeria where in the latter jurisdiction it has two assets. In the DRC, SacOil along with DIG Group has secured an 18.34% working interest in Block III (12.5% net to SacOil). SacOil benefits from a carry through FID that will include an exploration and appraisal programme up to the point of declaring an investment decision. SacOil operates in the country through its local subsidiary Semliki. Block III DRC is located along the Western branch of the East Africa Rift within the Albertine Graben and encompasses two basins, to the north Lake Albert Basin and to the south Semliki Basin. The partners will be targeting two plays similar to discovered plays in Uganda. The block ownership structure is presented in Appendix B. The Company’s Independent Audited Prospective Resources undertaken by TRACS is presented herein highlighting a best case unrisked resources of c.55 mmboe (WI). However, we note that this does not reflect prospectivity from two deeper prospects that are anticipated on OPL281 which could represent further upside
Share Price Performance - Licence Ratification Offers Re-rating Potential The Company’s share price has underperformed compared with regional peers and market indices which we attribute to pending ratification and closure expectation for its Nigerian licences. The lack of material catalysts in the story has somewhat led to share price drift with only a daily average of 2.1 mm and 648,000 shares over a three month period traded in Johannesburg (primary listing) and London respectively. However, we expect a run up in the share price on closure/ratification of the Company’s Nigerian acquisition and commencement of respective work programmes on both OPL233 and seismic acquisition in the DRC
Playing Albert Rift Basin for Free - A JV for an accelerated work programme in the DRC by TOTAL offers SacOil carry through for the exploration and appraisal programme that is expected to see a minimum gross spend of US$100 mm, exceeding the budgeted programme over the next 12 months of US$30 mm. Valuation Underpinned by FID Free Carry - Our target price is derived from the Company’s work programme carry in the DRC equating to approximately 2 pence per share broadly supporting the current share price, while the Company’s two Nigerian assets contributing 5 pence per share risked are not priced in at current trading levels. SacOil Holding Asset Base Source: SacOil Holding Near Term Monetization - SacOil offers investors a line of sight to production within two years in Nigeria benefitting from proximity to existing infrastructure and existing discoveries on its OPL233 asset which benefits from good quality oil (32 API) and proximity to the 600 mmbbl Apoi field operated by Chevron (CVX US).
Investment Summary We initiate coverage with a target price of £0.06 per share in line with our risked NAV and Speculative Buy recommendation that considers a US$100 mm gross work programme carry from TOTAL in the DRC together with a DCF valuation for the Company’s two near-term development assets in Nigeria. Our target price is predicted on the assumption that the Company receives ratification of its assets in Nigeria. As an Africa led E&P Company, SacOil has experienced a rapid and transformational path from a chemical manufacturing Company into an upstream business that has secured interests in acreage in the DRC. The asset base was extended through a JV agreement for Nigerian onshore and offshore licences OPL233 and OPL281 in late December 2010 and March 2011 respectively, that are both currently awaiting ratification and could possibly close before year end. Attractive Acquisition Metrics - An African centric management team provides a first mover advantage and ability to access value accretive deal metrics in Africa, underpinned by approximately US$1 bbl acquisition cost for its onshore and offshore licences OPL233 and OPL281, that compares favourably against other recent Nigerian onshore acquisition metrics
Highlights We are initiating coverage on SacOil Holding Ltd (SAC LN/SCL SJ), a Johannesburg and AIM listed Africa pure exploration and appraisal play with a market cap of £23 mm. The Company holds high impact exploration acreage in the DRC and also in Nigeria, both adjacent to previous regional discoveries holding a combined 55 mmbbl working interest risked prospective resources. The Company’s strategy is focused on leveraging off its African credentials through local partnerships to secure f irst mover advantage into partially de-risked prospective acreage targeting assets under attractive acquisition metrics. The Company benefits from a free carry by operating partner TOTAL through to FID (March 2014) on its Democratic Republic of Congo licence for a likely gross US$100 mm accelerated work programme spend. This, together with a cash generative route in Nigeria within two years following licence ratification from government, provides a floor valuation with near term upside and newsflow. We advance a target price of £0.06 per share risked (£0.11 per share unrisked) and a Speculative Buy recommendation where investors benefit from approximately 100% upside to current trading levels and where governmental approval of the Company’s Nigerian assets could help unlock development. Our target price is predicted on the assumption that the Company receives ratification of its assets in Nigeria
THESE CAN BE ISA'D TOO.
HAVE NO DEBT! New BOD and some very good licence areas ;)
Agreed. I think there must be things happening behind the scenes. With paying down the debt and the recent board changes im hoping there will be some solid progress with the already owned assets and some new deals to come. Could we be the next Afren?
We need big volume, this has been dormant for too long.
Small volume moves this. A lot of people would be happy to know the company now has no debt also.
Still good to see a 12% rise today, lets hope it continues to climb.
Hopefully.