Over reaction6 Sep 2018 11:34
Not all lost as some may assume.
Finally, the company will drill to a deeper exploration prospect in the Djeno sands interval, where an adjacent field called Minsala produces at a rate of 5,000bopd. Depending on results from these three horizons, the well may also be extended down to test another area called the Vanji Horizon.
What next for TLP-103
Today’s news is no doubt disappointing, but there remains some comfort to be had in the fact that Anglo African’s shares remain above the 8p they placed at in May. It is also somewhat reassuring that it has not decided to plug and abandon the well. This could still happen, but for the time being the delay has been driven by a topside issue – something above the ground – rather than a problem deeper below surface, that could be harder to overcome.
Although the RNS is light on detail, this could reflect the fact that the company simply doesn’t yet know enough about the issue to be able to release more information. It is worth noting Anglo African’s active efforts this year to improve shareholder communications. This, coupled with the speed and frankness with which today’s news was delivered – even if it was a bit thin on information for some investors’ tastes – suggest it will provide more updates on the delay as and when it receives them.
So although today’s news is an obvious cause for concern, it is not necessarily as catastrophic as the market’s reaction suggests.
Indeed, with TLP-103 spudding on 15 August and completion expected to take 64 days, it seems reasonable to assume that SMP has yet to even hit the Mengo and Djeno sands. With that in mind, if we are to take today’s news at face value, TLP-103’s underlying fundamentals do not appear to have been damaged. That being said, with Anglo African raising £7.4m in June and its need to fund the entire cost of drilling TLP-103, which is expected to come in at $8m (c.£6.2m), it would probably pay to be mindful of the firm’s cash position.
Assuming the topside issue at TLP-103 can be resolved relatively speedily then much of the potential remains on the table. If the issue turns out to be more serious that could be more problematic, but as things stand now this is not a dry well and the appraisal of the Mengo sands remain particularly compelling.
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