7 trillion cubic feet of gas.
Repeated disappointments can disillusion weary investors. After all, the third development well on the gas discovery was meant to be drilled last September, but Bhattacharjee decided to avoid any risk and wait until a fully funded development partner arrived on the scene. Aminex got its free carry with the Zubair Corp deal, which includes an upfront $5m payment that will help Aminex fund its other gas prospects in Tanazania.
Zubair (through its Eclipse Investment subsidiary) already owns almost 29% of Aminex and, as a result of the farm-out deal, has 50% of the Ruvuma field. ( Solo Oil holds a 25% in that licence).
It would take a lot to go wrong for these shares not to be worth significantly north of their current paltry one times p/e multiple rating. The 105m development programme is scheduled to get under way in the next few months (allowing for any hiccups caused by Bhattacherjee's sudden exit), including the third development well, the so-called Chikumbi -1 development well that is planned to be drilled in the next two months. It could not only prove up the existing Cretacreous gas field, but possibly also discover an additional potential 1 trillion cubic feet of gas in the lower Jurassic sandstone zone.
In these circumstances, Aminex's shares could only be described as grossly undervalued.
Continued: He is taking charge of a particularly interesting gas discovery at Aminex. Prior to 2015, it would have had little or no value and has being regarded as stranded gas as it is not big enough to warrant the building of a very expensive LNG plant to export the gas from Tanazania as the country had no internal gas pipeline network to distribute the gas.
The Chinese, however, funded a big 400- mile. 36 inch gas pipeline all the way up the east coast of Tanazania to the capital Dar Es Salalm, where there is a huge energy shortage.
In addition, there is an adjoining existing gas processing plant, the Madimba facility. It has a processing capacity of 210 million cubic feet of gas a day, but is only processing 70 million cubic feet of gas a day, leaving the facility with spare capacity of 140 million cubic feet of gas a day. This gives Aminex the opportunity to develop its adjoining gas field to avail of this capacity without any additional capital expenditure and it can also link into the gas pipeline. This latter has the capacity to carry 800 million cubic feet of gas a day but currently only carries 100 million cubic feet of gas a day, so Aminex's planned 140 million cubic feet of gas a day could be easily facilitated.And it might not just be for distribution to the capital city as there is also , 20 miles away, a Dangote cement plant that could covert to gas power if it had sufficient supplies.
The provides a most favourable background for Aminex
On top of this, the state agency- Tanazania Petroleum Development Corp (TPDC) - prefers to control and distribute all gas inside the country and, accordingly, pays gas producers $3 per thousand cubic feet at well head. This is not a bad price and removes a significant element of risk associated with coasts on gas processing and pipeline distribution.
In the recent agreed $105m farm-out deal with Oman's Sheikh Mohammand Al Zubair, the Zubair Corporation has committed to fully fund the drilling of a third discovery well that should not only prove up the already discovered Gretaceous age reservoir with an estimated 753 billion cubic feet of gas, but will also penetrate the considerably lower Jurassic reservoir, which could contain 1 trillion cubic feet of gas.
There are also five other producing wells and the overall plan is to produce 140 million cubic feet of gas a day in two years.
This Jurassic prospect is in addition to the gas already discovered and leaves Aminex with a fully carried 25% stake, resulting in a potential $40m a year cast flow from its onshore Ntorya licence.
With the shares trading in Dublin at 1 point 2 cent, the whole of Aminex's equity is currently capitalised at only 40m , which is bewildering given that the company could deliver a potential $40m annual cash low in just two years.This puts the shares at just over one times price-earnings multiple, although Aminex has also identified other significant prospects that could potentially yield up to 7 trillion cubic feet of
Since things are going well I thought I would re-post an article from The Phoenix Magazine that was first printed in May of this year:
Aminex has farmed out the development of its gas discovery in Tanzania with a $105m development deal. wherein it is fully carried through to full production and looking at a potential distributable annual $40m net cast flow in two years. The stock market has, however, responded in a contradictory manner, with the share price falling steeply from the 7p it hit two years ago in March 2017, just after it succeeded with its second successful gas discovery well in its onshore Ruvuma gas field.The shares are at just 1p. This is hard to explain given the two successful discovery gas wells, with a third appraisal well about to be drilled onshore, followed by a fully funded six-well development and a pipeline development programme. Indeed, Aminex shares appear to be incredibly low risk.
The shares have been overstimulated at times and in 2007 hit a whopping 45p on foot of a discovery in shallow water offshore Tanzania, adjoining Songo-Songo Island, where the so-called Kilwani North gas field was ultimately developed. This never achieved what had been projected and h as since been closed down, although the immediate area is being appraised with a view to bringing it back into production. This could be done at low cost given the existing gas processing plant on the island and the already fully-connected pipeline all the way up Tanazania's east coast.
This latter has, however, not been on the agenda for Aminex or its CEO (until last week at least), 41-year-old Canadian , Jay Bhattacharjee, who focused on Aminex's big onshore gas discovery on its Ruvuma licence block in the south of Tanzania, just north of the Mozambique border. Not only has the group drilled two successful gas discovery wells on the block, with the first in 2014 flowing sustained gas of 20 million cubic feet a day combined with 139 barrels of oil a day and a second successful discovery well with 17 million cubic feet a day.
Last week, Aminex announced that Bhattacharjee was steeping down as CEO and a director of the company with immediate effect "due to health reasons" and board member Tom Mackay was installed as interim CEO
However, given the extent of the farm-out deal and the update available on the company's finances in the annual report, it is clear that Aminex is now in a safe position. All the work and all of the cost of upgrading and developing the discovered gas field in Tanazania have been outsourced.
Macaky had been appointed as a non-executive director in 2014 and was the senior non-exec on the Aminex board. A geologist and petroleum engineer, for the last 20 years he has been working as a petroleum consultant and is currently a partner in Gemini Oil and Gas Advisors LLP.
MORE TO FOLLOW:
Would be great if they decided to farm into Barryroe Manyana. I think the cloud of uncertainty created by the Climate change movement has really affected sentiment around offshore Ireland, but I do believe that the main political parties in Ireland have no problem with developing Ireland's oil and gas reserves.
Article in today's Irish Independent newspaper:
October 13 2019 7:00 AM
A joint venture between four oil and gas explorers has dropped a frontier exploration licence for a prospect in Irish waters.
Irish oil and gas explorer Providence Resources announced the decision as part of a corporate update.
The joint venture, which also included Total, Cairn Energy and Sosina, said it had conducted detailed technical assessments of the area and had concluded it could not recommend any further development of the prospect
Total, the French oil exploration company, informed the Government of the decision to voluntarily surrender the exploration licence for the FEL 2/14 Diablo site, located off the south-west coast of Ireland, by the end of the year.
It follows Taoiseach Leo Varadkar's declaration during September's UN Climate Summit in New York that Ireland would not issue oil exploration licences for the Atlantic area in future, affecting 80pc of the country's waters.
The status of issued licences, such as the one given to the joint venture, is unaffected by Varadkar's declaration.
FEL 2/14 was awarded to Providence and Sosina as part of the 2011 Irish Atlantic Margin Licensing Round.
Total currently holds a 35pc stake in FEL 2/14 after farming into the licence in late 2017.
Total's block partners include Capricorn, a wholly-owned subsidiary of Cairn Energy, which holds 30pc of the prospect.
Providence has 28pc and Sosina holds 7pc.
According to the Irish Offshore Operators Association, about €1bn has been invested in the hunt for oil and gas off the coast of Ireland.
Nearly 160 wells have been drilled in Irish waters since exploration began in the 1970s, with only the Kinsale and Corrib gas fields yielding recoverable hydrocarbons.
In 2012, Irish-headquartered Providence, headed by Tony O'Reilly Jnr, discovered oil at the Barryroe oilfield in the Celtic Sea, 50km off the coast of Cork. The company believes the area holds 311m barrels of recoverable oil.
It is seeking a new partner to help fund the recovery of the oil after APEC, a Chinese backer, failed to provide $9bn (€8.1bn) in funding. Providence said it was laying off technical and support staff to cut running costs.
I think you have me mixed up with someone else there, but no worries. Sorry to say I had no idea things would not work out with APEC.
You are welcome JH77. Amazing the amount of money he has raised. Hopefully we will see something happening in the next while. I suppose the big investors have safeguarded their investment by taking up the placing. I wonder how Barryroe compares to similar fields in the North Sea.
An updated farm-out agreement slightly- enlarging the plan to a five-well programme was signed on June the 5th, with a "revised backstop date with APEC for receipt of the $9 million loan advanced to June 14 2019."
O'Reilly Jnr issued what now look like foolish "final" extension dates on four different occasions for this first tranche of money, on September 2 extending this further to September 9, giving "written notice to APEC" that, should its loan not be received by the close of business on that date, Providence reserved the right "to end exclusivity and also to seek all legal remedies available to it against APEC for contract non- performance."
At the September 12 AGM, O'Reilly yet again extended the date for the receipt of the initial tranche from APEC to September 30.
However, the funds were not received by that date and no further extension has been given. In a statement, Providence said it had informed APEC that it "no longer retains exclusivity and hat the company is now free to open up commercial discussions with third parties on the Barryroe asset."
It is remarkable to think that, as late as January 2018, Providence had 20 million euros in cash, more than enough to carry the company for a few years if O'Reilly Jnr had battened down the hatches and focused on getting the APEC deal through. Having spent the lot,he had to go cap in hand for a three million euro survival placing last month at a miserable 5 cent a share.
In not securing satisfactory bonding or guarantee of APEC's performance when he signed up with them in April 2018, O' Reilly Jnr made the same sort of blunder Brian O'Cathain made five years when he got approval for Dragon Oil's take-out of his PetroCeltic Group. O' Cathain failed to get the controlling Dubai shareholders to commit to the deal in the first place, instead relying on the fact that all their nominated directors signed up to recommend approval. That proved fatal at the time.
O'Reilly Jnr should have made sure that APEC had the money in the first place but, having failed to do so, he should have got to the bottom of the issue far earlier and terminated the farm-out agreement on grounds of breach of contract. Another solution could surely have been found.
What is surprising is that both the One hundred thousand pa chairman Pat Plunkett and Angus McCoss were on the Providence board when the company first engaged with APEC in October 2017 and when the deal was signed in March 2018. It is hard to see what these experienced heads are doing on the board given recent events or how the pair and O'Reilly Jnr have been forced to abandon ship to be replaced by a new team.
As it is, with the 10% enlarged share capital post the placing, Providence is now only capitalised at 33 million euros - an awfully long off the 10 billion euros projected potential profit available from drilling Barryroe.
That, however, was just to cover the costs and loan repayments Providence had incurred in the interim period, as well as a final 7 million euro legal settlement with Trans-Ocean.
After O'Reilly Jnr managed somehow to raise a further 60 million euros in 2016, at a dramatically discounted share price of 15 cent a share, to drill a wildcat well in the deep Druid/Drombeg prospects, both prospects proved complete duds.
At the beginning of last year, the exploration company looked to be sitting pretty, with no borrowings and 20 million euros in the bank. When the farm-out deal with APEC was signed in March 2018, it looked like nothing could go wrong, with APEC carrying the full development cost and risk of bringing the Barryroe oilfield into production.
Shareholders would also have been reassured by the experience now on the Providence board, with Pat Plunkett in the chair since October 2016, and Angus McCoss having been drafted on to the board in June 2017.
As it turns out, not only was the APEC deal quite complex, but the principal counter-party , APEC Energy Enterprise, was not an entity of substance. The 100 million euros four-well development deal it signed up to was itself a sensible programme and the fact that it was going to use China OIlfield Services Ltd (COSL), the service company linked to the giant Chinese CNOOC group, suggested the latter was in some way behind this whole project. At it turns out, this was not the case.
The clear-as-mud structure of the deal was that APEC would farm into a 50% stake in Barryroe and procure the finance through another Chinese company, JIC Capital Ventures. The latter would provide the 50 million share of the development costs that would have to be carried by Providence and its minority Lansdowne Partner, by way of a non-recourse loan that would be refunded out of oil production.
Further complicating matters was that this farm-in and non-recourse loan deal was subject to Irish government approval through its petroleum affairs division (PAD), but it was also subject to getting approval for a well site survey, as well as a green light from the Chinese government.
As it turned out, An Taisce sought a judicial review of the July 2018 PAD approval for Providence to carry out "a seabed debris clearance, environmental base line and habitat assessment site survey at Barryroe, together with the supporting environmental impact assessment". This approval was quashed in January this year and Providence submitted a new application in February to carry out the well site survey pre-drilling. The second application was only approved in July.
Separately, APEC agreed "outline terms" with COSL in February and identified that the group would use the COSL "Innovator" semi-submersible drilling unit for the Barryroe drilling.
MORE TO FOLLOW.
Here is the rest of the Phoenix article: O'Reilly Jnr just managed to survive by scrambling together a tiny Three million euros placing, at a miniscule 5 cent, a share price, which compares unfavouably with the 65 million euros share placing seven years ago immediately after the results of the flow test from the last drilling in the Barryroe field offshore Cork. O' Reilly Jnr has now lost most of his pals on the board and his long-time technical director, John O' Sullivan, as well as most of his staff and luxury offices in Airfield House, Donnybrook, D4.
Providence Resources/ Atlantic Resources has spent 40 years failing to find commercial quantities of oil and gas offshore Ireland, having spent well over One billion euros, mostly funded by major oil company partners. Today , the company has little to show for it other than significant shareholder dilution and a nice 470, 000 euro base salary for the CEO.
In his half-year statement issued on the morning of the September 12 AGM, O'Reilly Jnr referred to "significant delays for key operational- related consents at Barryroe". He said he had been forced to manage "the increasingly negative political climate action agenda and continue to deal with the delays in the payment of the funds due from APEC in respect of the Barryroe farm-out, implement a major corporate re-engineering process and execute a placing to provide essential working capital".
If this was supposed to be a boast of his record of achievements, it was in fact a record of O'Reilly Jnr's failures.
In June, 2016, O' Sullivan and O' Reilly Jnr managed to talk investors into putting up a whopping 70 million euros at a hugely discounted share price of 15 cent to drill Druid and Drombeg prospects in the 6,000 foot deep South Porcupine Basin. For a company with a record of 22 drill failures, spending money like this on wildcatting was impossible to justify, particularly as the funds could have put three wells in the already discovered Barryroe oilfield, 40 miles offshore in 300 feet of water to turn this into a proven producing oilfield. With 350 million barrels of recoverable oil, this could be worth 21 billion euros.
Although O' Reilly Jnr and O'Sullivan had raised 60 million euros in 2012 at five euros and ninety cent a share on the back of the success of the Barryroe drill, (which flowed at the equivalent of 5,000 barrels of oil a day), this money was all swallowed up by the cost of drilling. Trans-Ocean was supposed to take two months, but ended up taking seven months and costing 80 million euros.
O'Reilly Jnr sat on the Barryroe prospect over the next three years without taking it to the next stage and saw the Providence share price sink. The company raised a further 28 million in March 2015 at a placing price of 34 cent a share - a 94% discount on the April 2012 placing.
MORE TO FOLLOW.
We will know the result of the share placing soon. It will be passed, and then it will be another extension as I imagine the word will be that the money will arrive shortly.
https://www.rte.ie/news/business/2019/0930/1079061-providence-resources-egm/
Looks very like the money will not arrive in time but the share placing will give Providence another five months to look around for another company to come in and farmout Barryroe or perhaps Providence will be taken over by a company with interests in the North Sea. The major shareholders have decided to invest some money in the placing to protect their investment and keep the company ticking over as a going concern.
I would think that if any of the existing licences strike oil or gas that will change the debate as to whatever Ireland should use its own natural resources.
I agree Mamms. As you say, if the funds do arrive shortly the spike in oil prices will give an extra boost to the share price. I noticed an article posted on the LOGP board and I have copied the following piece.
"Another shareholder, Ian Lumley, who is also heritage officer with An Taisce, objected to the directors report and financial statements as he said they do not identify the risks facing the company because of national climate targets, which he claimed would require oil and gas that is in the ground to stay in the ground.
He added that the time has come for Providence to meet the global climate and biodiversity challenge and he called for a new outside chair to take the business in a complete redirection."
Amazing to think that Ian Lumley has taken the time to spend his own money to take, what I presume is a small shareholding in order to be able to go the AGM and point out that Oil and Gas should stay in the ground. I am sure it is not in his remit as heritage officer with An Taisce to attend an AGM and make these statements. He is the reason that we are in the situation that we are because he seems to be on a one man crusade to close down Providence. I am wondering if anyone at the AGM asked him if he is happy now that he has succeeded in making the vast majority of people who work in Providence unemployed.
The Government is in charge of the country, and I understand the role of An Taisce, but if he feels he is there to implement the national climate targets, that gives him the power to close down all Oil and Gas companies, reduce the national herd and make sure that one million people are driving electric cars by 2030..
The government will not meet any of these targets and well they know it, but they also know they have to get elected, so will say what suits, and will govern in the best interests of the country. Richard Burton has already said many times that oil and gas will play a part in the energy supply going forward. He mentioned that we should not be relying on the middle east for our oil and gas and need to have our own secure supply.
Anyway not to be going on, but I am amazed that the ever person that has delayed the site survey for several months was sitting right there in the room.
The drone strikes have taken half of Saudi Arabia's oil production offline. Should spike the oil price in the short-term so at least that helps with the back round music for Providence.
Tony spoke to journalists after the AGM today and the Irish Times has the following coverage:
https://www.irishtimes.com/business/energy-and-resources/o-reilly-leadership-of-providence-in-balance-if-funds-not-received-1.4015902
The funny thing about People before Profit is that I remember Richard Boyd Barrett standing up in the Irish Parliament a number of years ago insisting that the government develop the Irish offshore. His argument at the time was that there is a bonanza of oil and gas under our feet and the tax take by the government from oil and gas should be used to fund hospitals and other government programmes. We all agree!
Hopefully Tony will reply to some of these questions, as I am sure people really would like to know what has being going on in a bit more detail. I also would bet that he will mention that the current environment around offshore drilling has being put under a shadow by Climate Change. As regards Providence the delays caused by An Taisce and People before Profit have really dampened down investor interest in the sector. Having said that, I hope they will be able to keep going and get Barryroe to a drill ready stage.