This gives an interesting perspective on the recent New Age/Lukoil deal - indicating that that was the first of a number of deals involving Lukoil and SNPC in the country.
"Lukoil’s move has marked the beginning of its expansion in the Republic of Congo."
"Lukoil purchased shares at an auction held by Citi Bank and the entire sum was transferred to accounts held by this bank, to which New Age owed large amounts of money. It is noteworthy that New Age is controlled by China-based investment fund Noru. The Congolese oil investment could be eyed as yet another demonstration of ever-closer energy cooperation between Russia and China."
New Age had recently negotiated a gas off take agreement from Marine XII with significant amounts of the gas going to China.
"The Russian oil firm intends to develop its activity across the country, as exemplified by the letter of intent signed with Congo’s SNPC in late May this year. The document provides for evaluating the possibility of joint participation in all projects related to geological research, exploration and hydrocarbon extraction in the Republic of Congo."
The share price is being punished because of supposed concerns over finance and the alleged legacy issues remaining from use of the SMP rig.
I'm not sure what the exact financial position is at present - more information will be disclosed in the Annual Report. In 2018 it was published on the same day as the AGM, in 2017 around 3 weeks prior. So we will get news on that soon.
The use of Havoc Partners is interesting.
All five founding partners of Havoc also worked at Ophir Energy plc. Their focus was African O&G.
No one needs reminding the JB was also a director of Ophir.
Havoc not only prepare reports, they also invest. This is what Havoc says about itself -
"Havoc’s investment strategy is to seek early stage exploration opportunities where investment in geoscience data and/or technology can create disproportionate increases in value. The preferred approach is to back strong management teams via investments at the corporate level in private or public companies however where appropriate Havoc may also invest directly as a working interest participant in projects. The degree to which Havoc is active within either an asset or corporate investment will depend on the scale of the investment and the circumstances however Havoc has a wealth of expertise and contacts that it can draw upon to provide technical and commercial support on an as required basis. The form of Havoc’s investment may be in the form of cash or services or a combination of both. This flexible approach enable’s Havoc to capture a wider range of opportunity than a traditional passive investment fund and allows the partnership to make best use of its skill set to create value".
I had never even heard of Havoc until yesterday, but Tilapia looks like the sort of asset they could be interested in.
I've posted this before speculating that SNPC's new drilling partners could speak Russian -
But the MKB field has always been solid if bit of a disappointment - so Q how to get output to "hit the roof"?
A - Drill deeper to the Djeno!
AAOG may have had the idea first, but others appear to be catching on - including New Age at Marine III, who will be targeting the Djeno in 2020, literally on our door step.
This is a simplified geological map of the area, showing the Djeno, and the Vandji, not so far below.
So I don't buy the idea that little AAOG is "Billy No Mates".
Three world class geo outfits have said we can produce (cheaply) from the Djeno.
That will have piqued interest from Houston to Moscow.
Watch this space, 'cos DS is a man with a plan.
Agree concerning March - this CPI report could have been produced several months ago.
I believe that DS used the CPR to play for time.
I think he is still playing for time, but matters are closer to a conclusion.
Agree once it comes together this will indeed be a storming buy - as it is now, and has been for several months.
LOL! Twitter trolls very quiet at the moment.
DS still holding back somewhat - just giving us enough for now - but keeping his powder dry for the big time.
Majors will be looking very carefully at us and what we do.
Don't forget we didn't even hit the "real Djeno" just 10 metres -14 metres of "pre Djeno" - even though it is confirmed as Djeno.
Just wait til we hit the real target.
DS will be telling the suitors to line up in a nice row and he'll see them when he is ready.
Not just yet - but I think guys with a Russian accent will be first in line.
Certain Russian executive are either in Congo now or will shortly be en route.
But equity is common sense based and takes precedence
If they did a bad job - SMP - then of course we are allowed to withhold payment!
If they happen to sue us first for unpaid costs, we simply counter claim for all the costs and expense we incurred by the delays.
Whether there are "setoff" provisions in the contract is irrelevant - if they haven't complied with the terms of the contract ie to provide us with a rig that works, then we are entitled to money back and that money could exceed the costs of the rig in the first place.
We don't have to pay up first and then spend years chasing them round the court system.
DS is an Oxford educated barrister, so would imagine he knows what he is talking about.
And if we win then they pay our costs.
And we were never going to drill in April - we were going to frack using Schlumberger equipment.
Don't forget the drilling cost us twice what it was meant to - with parts having to be flown back to Paris for repair - and a welder on site at all times to continually repair the rig.
Anyway ending up in court is par for the course in business - no no big deal here.
And now SNPC are going to dramatically boost production from their MKB operated fields – which have been performing poorly for the last decade or so – by bringing in a new unnamed oil services company
Surprise – they'll be able to increase production when they've failed to do much for years. I would say that these new unknown partners will almost certainly speak Russian.
So there is a theme here – Russia suddenly coming into Congo big time and Congo being willing (and able) to pay its dues to Moscow.
Moreover, the New Age/Lukoil deal on Marine XII appears to have been at an undervalue
$800M appears to have been a 36% discount which is explained away, but it would make more sense to me if this was part of a wider deal to pay down debts.
New Age also wants to sell down part of its 75% interest on Marine III, next to us. They also cooperate with Lukoil in Cameroon on the Etinde block, so it appears logical that they could cooperate on Marine III, and assist Congo and SNPC on further paying down Russian debt by selling part to Lukoil.
It would also make sense if SNPC were to sell part of its share in Tilapia to Lukoil, and would explain why they were so desperate to keep their share at 44% vs AAOG at present. They would get cash, a free carry (off Lukoil), and again pay off some Congo debt to Russia.
One of the directors of New Age, David Peel, their EVP of Exploration and New Business worked for Lukoil from 2014 to 2018. Surprise – he did the Marine XII deal!
DS worked for Lukoil also, of course.
Strategically, geographically and economically it would make sense for all parties if AAOG, New Age, SNPC and Lukoil were to cooperate on Marine III and Tilapia.
It would also explain the long wait to get to where we are now and why DS has been so reticent to disclose the CPR (or indeed anything at all) to anyone.
Now that matters have been cleared at the highest levels regarding Congo and Russia/Lukoil DS may be at last free to finalise his grand plan.
I wouldn't say it was quite there yet, but if he drops the CPI tomorrow, then it gives a little longer to finish the big deal.
All IMHO, DYOR etc – but it does all make sense.
Tiburn I agree with much of what you say – fundamentally this is sound despite the share price being ravaged by the market.
DS is right to be mystified, but I think the present performance is explained by fickle and easily spooked pi's, who obviously don't want to lose hard earned cash, and understandably can't bear to see it dribble away.
DS is not mightily expericed in running an Aim company and what he could get away with on his other ventures, comes up against the hard reality of pi foibles and the savagery of twitter.
That said there is no doubt in my mind that DS has been playing for time from end January to date. I was always a little surprised that everything appeared to be put on hold for the CPR, and now it isn't coming – at least for quite a while yet.
DS is still playing for time, even now.
Question is why, and how much longer can it go on? He is up against something of a deadline on 28th June and in extremis could find himself out of a job. I can't see any way he can get R4 though at present as it requires 75% of the votes.
So what gives?
You are right on the financials for SNPC and Congo – they are both brassic.
This is the latest on Congo finances (behind a hefty paywall, unfortunately)
So all the more remarkable that they continue to pay us to maintain their 44% share. Why are they so desperate, when the most obvious thing to do would be to settle for 80%-85% and a free carry? Congo would still get well over 50% of the money generated via royalties and taxes etc. SNPC would get 15% to 20% for nothing.
But Congo has new friends – President Sassou-Nguesso met with Presidet Putin in Moscow on 23rd May 2019 and the following day Lukoil signed agreements with SNPC on oil development and cooperation
Congo has good reason to be friendly with Russia as renegotiating its debts to Russia will bring forward the release of IMF loans. Congo has already restructured with China and certain global traders.
The Congo/Russia deal actually goes much deeper, and allows for cooperation on all manner of issues from nuclear technology to military cooperation.
Surprise, surprise Lukoil then buys New Age's 25% interest in Marine XII on 7th June 2019 – a move that had been predicted by africanintelligence on 15th May 2019 – albeit with a then unnamed Russian company – obviously it was going to be Lukoil. continued.......
Wow gmcc - that is quite revealing!
"Potential exit down the road."
They won't be interested in tiddlers.
Also more to this maybe than meets the eye.
Lukoil have only just entered the country following the agreements in Moscow on 24th May. So has DS always had an eye out for them - or just recently?
Too much going on within a few km of Tilapia for this not to come good - and big hitters joining in the choreography - Putin - Sassou Nguesso - makes for an interesting situation.
The geography is, I think, as important as the geology here.
Following their sale of Marine XII New Age have confirmed that they intend keeping Marine III - with seismic later this year and drilling (off shore) in 2020.
Some of the $800M from Marine XII will be reinvested in Marine III, and they will be targeting the same reservoirs as targeted in Marine XII - ie it is a Djeno target.
Given that most of their leads are adjacent to us - it would seem sensible that the drilling will be adjacent to us also.
So New Age will be targeting the Djeno next door to us and expect to find something similar to Marine XII there.
Marine XII will be producing 100Kbpd by 2025.
In fact I think New Age are being a bit coy on their map of the Marine III targets with just putting in the targets as completely surrounding our licence area. They might as well have gone the whole hog and put some targets in our area also. As they haven't done it - I've done it for them and incorporated the apparently successful CNOOC wells also.
I've called it "Greater Tilapia" where New Age targets are red, our licence area (approximate) yellow and the CNOOC well locations marked.
It would actually make much more sense for New Age, instead of acquiring an expensive drilling ship, to drill from onshore. Their targets mostly appear to be around 6-7km off shore, and just within range for directional drilling (which apparently can go for up to 10km) with a suitable rig. And it would be around 60% to 75% cheaper for them.
The only problem is that the whole shoreline comprises our's and CNOOC's licence area. CNOOC's licence area at the shoreline comprises mainly rain forest or animal sanctuary, apart from at the very southern end where there is a narrow strip between the coast and rising land.
In fact we at AAOG have the only decent sized coastal site (about 3-4 km2), with the RN5 road neatly diverting around it, for many tens of kilometres either side, on which all manner of rigs, tanks etc could be situated.
It would be far, far cheaper (and less risky) for New Age to drill their wells from our Tilapia site and co operate with us on developing whatever they find. Rigs, pipelines, tanks etc - all would be cheaper, and the cost could be shared with us.
We could even swap some of Tilapia for a bit of Marine III, and if Lukoil joined in it would be like all old pals together.
Geographically, I'd say it was obviously logical.
And could explain the delays.
DS has been acting mighty strange recently - after all the presentations and visits to Pro Active over recent months he's gone very quiet PRwise. (He still knows where Pro Active is because he was there for Widecells last week)
We are in something of a sweet spot - I've updated my Tilapia map
Showing 103C, our approximate licence area (in yellow), New Age's "leads" on Marine III (in red), and the various CNOOC pads to the east of us.
Regarding the CNOOC pads S and E1/E2 may (only may) have been failures as they no longer have any equipment on them.
But N2, BN, N, C and S2 all appear to be fitted with equipment and tanks. CNOOC has an exploration and appraisal licence, so cannot actually produce, but the tanks suggests some limited appraisal production.
The large gap between BN and N2 is due to the animal sanctuary and tropical rain forest between.
BN is around 3x the size of the other pads suggesting it is intended for some directional drilling and multiple wells eventually.
The New Age interests are obvious.
And we are right between. Tilapia is effectively surrounded by “leads” and appraisal drilling from two completely unrelated operators.
I'm sure DS will have noticed this.
And others also.
New Age sold their 25% Marine XII interest to Lukoil last week. They are apparently looking to sell down part of their 75% stake in Marine III.
DS at one time held a senior position at Lukoil.
Much is made of the fact that we can drill offshore wells from our land based position. So far we've reached out around 2km. But directional drilling can go much further apparently – it could even reach out to New Age's leads around 5km from the coast.
The problem for New Age is that most of that coast line is taken up by either the rain forest, the animal sanctuary, or our licence area.
But they would save themselves a lot of money if we allowed tem to use Tilapia as a “base” for their directional drilling – and maybe jointly develop their leads. And they may seek participation from their new found Russian friends at Lukoil.
Enter DS, stage right.
A man with a plan.
DS indicated - pre RNS - that it was "hopefully good news".
Clearly the market disagrees, and our market capitalisation is now under £20M.
Do we really need a CPR at present? I think not.
We've been obsessed with the CPR (and producing from the Djeno) ever since 103C completed in January, and we seem to have been led well astray, only really to find ourselves where we were.......at the end of January.
The share price really suggests that we are a company in trouble - but it appears to me to be overdone.
Tilapia actually costs around $65K per month to run Tilapia. Income from 101ST at 53 bpd should be slightly in excess of $100K per month. On top of that you have central costs and consultancy fees. So AAOG will be running at a monthly loss, but not a huge one.
Income from SNPC over the last 3 months amounts to $1,979K. They average $663K per month, the last payment was greater because Apri'ls payment was only $600K (although we're still $10K adrift somewhere).
So if money was set aside to frack 103C, there should be $3-$4M left in the bank. DS still has authority from last years AGM to raise a few million, so if in the worst case scenario 103C was damaged beyond repair he could scrabble enough together for a cheap drill on 104 to the R2 or Mengo. TLPM -2 produced 2,000bpd from R2 alone when on test.
That would be enough to kick start production and cash flow - if all else had failed - but he chooses not to do it.
Question is why, and why obsess with the Djeno, all for no result (as yet) when what the market clearly wishes to see is some increased production?
For the record I think we are producing more than 53 bpd, but DS chooses not to RNS it.
Why all the obfustication and great gnashing of teeth when we could produce, albeit relatively modestly, quickly and at limited cost?
Negotiations with SNPC? I thought that these were probably complete, but maybe I was wrong. I don't think we could mislead them into thinking there was less oil there than there actually is - they know the country backwards. And from the latest RNS they clearly wish to retain as much of Tilapia as they can.
I also suspect the prospect of a big fund raise in the AGM notice is aimed not at shareholders (although it spooked them also) but at SNPC - "entering a capital intensive period" - (or such like) and designed to make SNPC sit up, as Congo is clearly borderline broke and cannot fund such works.
General thoughts on the AGM - I can't see how DS can get R4 passed as he needs 75%. And if he can't get that through then he will really struggle to raise those funds - if he really wishes to do so.
If he does, he will need to come up with something persuasive before the end of the month.
Negotiations on a JV? Personally I'd veer to that.
Tiburn - nice calculations, although I think the timings are a bit optimistic.
However I think all this will be superseded by whatever DS is planning at present, hence the long delays on the CPR and production plan.
The New Age map
shows two "leads" immediately to the NW of Tilapia, one immediately to the SW and one to the S.
They are in diagram form, showing that they are each around 5-15km wide/long with around 1km between each.
It would make much more sense (to me) if they were just one big (massive) prospect with Tilapia slap bang in the middle leading to a total field similar in size to the adjacent Nene/Banga fields to the West.
That is supported by the CNOOC drilling to the East of us, although, of course, we don't know what they might have found.
I suspect that DS is working on an overall plan, which will render talk of 103C/funding/SNPC share etc superfluous and take AAOG in a new and perhaps unexpected direction.
Well worth waiting a little longer for.
Days? Weeks? Who knows?
Frustrating - yes - but one thing the knockers cannot get over is that the extensive CNOOC drilling to the E has taken place and the maps produced by New Age showing leads to the N, W and S have nothing at all to do with DS.
There is a big prize to be had here and AAOG is geographically and figuratively right in the middle of it.