The valuation of Aje:25 Jan 2018 13:27
https://seekingalpha.com/instablog/49022789-moonflash2017/5088683-panoro-energy-asa-rare-oil-gas-investment-opportunity-massive-upside-potential
Long story short, the license owners New Age, Yinka, EER, MX Oil and Panoro have been quarreling all year long about several issues. The infighting is finally in the process of being settled, which was recently announced by Panoro. The oil production volumes from the current two well production have been lower than expected, but is likely to remain around 3500 barrels per day in the coming years, assuming no new drilling of wells. Potentially, the production could be raised in the future, given better reservoir knowledge and understanding. The major part of this asset is the natural gas discovery of 500 bcf (equivalent to 160 mill boe) and 22 mboe of condensate. In contrast to the major part of offshore fields in Nigeria which are in the eastern part by the Niger Delta, Aje is in the west towards the Benin border. More important, it is very close in proximity to the Chevron operated 680 km West Africa Gas Pipeline (WAGP). WGAP runs from the Nigerian shore and the Lagos area, offshore westwards toward Benin, Togo and Ghana. This makes the discovery easy to export to onshore gas needs along the west african coast. I.e. to the Lagos market.
Panoro�s stated strategy is to divest all or part of this asset. The settlement process is the first step in this process. After this, it is likely an exit will happen in some form. The value of Aje is based on a range which stretches from a low case to a high case, based on a possible transaction value in an exit from the partnership. I expect the value range in a divestment to be in the 20-40 millUSD net of any existing cash calls in the partnership. So for valuation purposes, I use 30 millUSD. I.e. 6 NOK per share. This valuation range (20-40millUSD) is well below the transaction price when the administrators of the Afren bankruptcy, sold Afren�s share in Aje close to the bottom of the oil price cycle. It is also well below historically invested capital in the field.
Note that realignment of field operating costs with contractors in 2017, to fit the lower than expected production, makes the current oil production profitable going forward. There is a cash call from the partnership of app. 6 millUSD towards Panoro, which will be repaid from the cash-flow from the current production, and/or in an exit. The current cash call could potentially be negotiated lower as part of a final settlement with the Aje partners, which is expected sooner rather than later.
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