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But to be fair to the company, part of this has been as a result of what has been going on in the gas industry in Tanzania and the legislation relating to PSAs. Aminex certainly isn’t the only company that has made a potentially very large gas discovery there, only to see everything put on hold for several years.

There is an ongoing review by the Attorney General of all PSAs as the terms of the existing ones were not seen to be benefitting the government enough. That could well see less favourable terms for companies operating in Tanzania once the PSAs are revised, but at the same time it will still want to attract foreign investment, so I would expect any new terms to be fair rather than being prohibitive to operating in the country.

For a company the size of Aminex, getting the amounts of funding required to make any sort of progress towards production is always a big issue, but that problem looks to have been resolved when ARA Petroleum Tanzania (APT) farmed into the Ruvuma PSA, taking a 50% working interest and leaving Aminex with 25%.

This took place in July 2018, and in terms of the ability of APT to fund further work and eventual development, this Omani company was set up specifically to develop Ruvuma and is an affiliate of Eclipse Investments, the largest shareholder in Aminex, with over 28% of the shares in issue.

Under the terms of the farm out deal, Aminex is about to start receiving payments of up to $3 million – completion of the farm out has stalled due to the review of the PSA terms, but still looks on track once that has been sorted out – and with a further $2 million to come after that.

More importantly though, the deal also includes a free carry of up to $35 million relating to the 25% share that Aminex retains, so in effect that amounts to up to $105 million being spent by APT. This spending relates to seeing things through to an early production system producing a gross amount of at least 40MMcfd, in order to earn its 50% interest, as well as drilling Chikumbi-1 as soon as possible. There is also a clause whereby Aminex gets an additional share of the profits, should the full $35 million carry not have been spent prior to 40MMcfd production being achieved.

The biggest stumbling block remains the sign-off of the new PSA, but as soon as that happens the plan is to drill Chikumbi-1 as well as completing extensive 2D and 3D seismics, with $40 million gross budgeted for this.

The one concern with all of this is how the other 25% partner in Ruvuma, Solo Oil (SOLO) – soon to become Scirocco Energy assuming an ongoing deal is completed - would cover its share of the costs given its ongoing acquisition of North Sea gas fields from One-Dyas. Solo has already stated that it is looking to sell its stake in Ruvuma though, but it all comes down to how quickly that is completed, and again I suspect will largely hinge on the situation with the PSA being resolved.

Turning to the financial situation that the company is in, trade payables of over $11 million as part of current liabilities immediately jump out at me as being a large amount that is outstanding.

But a closer look shows that the situation isn’t as bad as it at first appears, as the majority of this relates to payments that will trigger when the Tanzania Petroleum Development Corporation actually pays the money that it owes for gas that has previously been delivered to it, which is accounted for in trade receivables. Although there is still a fair amount that will have to be covered by Aminex - $3 million or so – at such time as it does receive the money due from TPDC, it certainly isn’t as bad as it initially looks, given that it had around $2 million in cash at the time that these accounts were published, plus the money now coming in from APT. Although the level of cash burn just to run the company is high and it will need rapid progress on the resolution of the PSA and completion of the farm out, if it is going to be able to avoid further equity fundraises in the coming year.

There is definitely the potential for further downside here, especially if the situation with the PSA drags on, or worse case APT pulls out of the farm out - given the ties to the largest Aminex shareholder I see that as unlikely. As in the absence of Kiliwani returning to meaningful production quickly, it would be likely that the company would need more funding, and in the absence of positive news that would likely come at a discount to the current share price level.

But it is also worth considering that any resolution of the Ruvuma situation, with a new PSA in place and the fast-tracking of the Chikumbi-1 drill, would see potentially large amounts of upside here. Longer term, we also need to consider that if Ruvuma successfully makes it into production, then even with its remaining 25% stake, that would be huge news for a company the size of Aminex.

This is a stock which I would just put on the watch list for now and wait until the PSA situation is resolved and the farm out is completed, as whilst that does mean that you would miss out on the early part of any rise, it also means that you aren’t taking the risk that this could drag on for months to come. At that point I could see this becoming a speculative longer term investment, as there would be a good chance of it progressing to production, and the shares would offer better risk versus reward at this stage.

With this type of company it is always worth remembering that you don’t need to get in right at the bottom, as in the success case the share price would grow over a number of years.

But how badly have you injured the golden goose?

Thinking about it, I suppose you could also add:
- Completion of the farmout
- Approval of the Nyuni license extension and details of associated operational plans
- 25 year development license and details of gas terms negotiated for the Ruvuma PSA

Hi bucklerfern, that seems like a good list and covers most bases. You could add:

Results of the extensive 3D seismics - remember, according to the RNS of 06th Nov the plan is: "more than 500 km2 of 3D seismic designed to fully image the Ntorya gas field and the acquisition of approximately 450 line km of 2D seismic over the remainder of the contract area to identify other leads and prospects". As I posted previously, that is about 5.5 x the size of Washington DC and doesn't include the planned 275km sq of 3D seismic over Kiliwani North and Nyuni!

Drilling of the Kiliwani South prospect - The Jan 2019 EGM presentation mentions "Kiliwani South prospect identified with 57BCF (mean un-risked GIIP). Now whether Aminex will drill this any time soon will depend upon funds available, approvals and any perceived dependency on the planned seismics.

Anything further and more concrete that links our assets to vast export opportunities such as pipelines to Uganda, Kenya, South Africa etc. On that point, you may be interested to see that this article specifically mentions "The Tanzania Petroleum Development Corporation has mooted supplying natural gas to Uganda and Kenya from the Tanzanian Rovuma basin reserves": https://www.dlapiper.com/en/uk/insights/publications/2019/11/africa-connected-issue-3/the-role-of-gas-in-powering-africas-future/

Finally, on your 2nd point, it is perhaps worth expanding this to mention the very real possibility of significant commercial quantities of oil.

Hi matherdj, I believe that Madimba has free expansion slots. Also, whilst the famout documentation mentions gas processing plant capacity of 140mmscfd, numerous sources on the internet state that the capacity is actually 210mmscfd. The most reliable of which is probably the TPDC's own website:

http://www.tpdc.co.tz/gasco.php

Hi Crusty, I agree that the re-completion may not be worth doing. More of a business case for NT2 than NT1 if reports of potential flow rates are true.

Also, if APT don't spend the circa $105m (in order for Aminex's carry of up to $35m to be spent) before the minimum 40mmcfd is achieved, then APT will have to assign 1/4 of its share of profit to pay the unspent carry amount.

With the global oil and gas industry reeling from the impact of falling prices, it may be that some of the committed work programme can be delivered at lower than anticipated costs? Regardless, if TPDC build the pipeline to Madimba, I understand that Aminex expects their share of the spend to achieve 40mmcfd to be considerably under the carry amount.

So, it may then make sense for APT to spend additional money on re-completion as part of the EPS, as this could result in additional revenue and avoid/limit avoidable additional payments out of profit to Aminex?

Hi CrustyPete, in an earlier post you mentioned that "JB said to me on more than one occasion that the cost of "cleaning up" NT2 was difficult to justify; it would have cost not much more to drill a totally new well and then have an additional flow of gas over and above NT2".

P.60 of the farmout circular from Dec 2018 says "Drilling costs are again provided by Ndovu with 2 existing wells being re-completed at $4m each".

It also mentions that "Drilling costs for the 8 additional wells are $140m including contingency" - so, on average, $17.5m per well.

Obviously not all wells and their drilling costs are equal. The cost of re-completing wells compared to drilling new ones also does not mean that the relatively smaller re-completion costs would actually be worth it, considering the additional revenues that may be generated.

Regardless, hopefully these figures are helpful.

I had been a little concerned at the fact that Majedie are selling down their stake in Aminex. CrustyPete suggested that this is likely to be due to underperformance of Majedie and them having to sell investments as clients move money elsewhere. I was keen to know more and found this recent article:

https://portfolio-adviser.com/majedie-highlights-underperformance-as-it-swipes-barnett-mandate/

It mentions that:
"Majedie Assets Under Management (AUM) falls more than £3bn"..."Chairman David Henderson blamed the write down of Majedie Asset Management by 22.5% to £40.8m for the investment trust’s underperformance in its annual report for the period ending 30 September 2019.

"Its net asset value at par fell 9.3% over the year".

"The board decided to write down the stake in the fund house due to assets under management falling from £14.1bn to £10.8bn and a reduction in management fees from 1 October".

£3.3billion is a huge fall in assets under management! This does make sense of what is happening. Sincere thanks to CrustyPete for highlighting this as the likely reason.

...of which, just over $3m will be attributable to Aminex. Will still be very welcome though

It’s still early ;-)

Finally!!!! After YEARS of waiting!!! The news has landed. We will not go bust! We’re now on track for an exciting exploration programme, potential oil and carried to a strong revenue stream!!! Well done to all the believers.

I agree with you about the PSA and Aminex references to media reports rather than direct engagement Sambo. I take solace from the fact that the HGAs for the massive LNG plant are behind us in the queue - that must bring some added pressure to move things along. Also the fact that all sources seem to point to the PSA process nearing completion. This debacle has taken far longer most of us could have imagined. It does however seem as though the long, long wait is nearly over. The long stop date is still more than three and a half months away, so I think the farmout will complete well within that timeframe.

Whilst much of the globe is in meltdown with fears of economic impact from coronavirus, Tanzania's economy is forecast to grow by a robust 6% this year. That's not to say that Tanzania might not be impacted by Coronovirus but it is worth noting that ~40% of Tanzanian exports are gold (not a bad place to be right now), followed by things such as coffee, brazil nuts etc. So food items and things that people are much less likely to be cutting back on in a global slowdown.

Also, any revenues we get in the very short term could only come from Kiliwani where we have a fixed price for our gas - so no impact there.

By the time we get revenues from Ruvuma, this storm should have blown over and, again, we will presumably be getting a fixed price for our gas there too.

I believe we're funded until at least October this year and I'm confident that the farmout will complete long before then! With that in place, we have no need to go to the market for any kind of financing - companies that need to do this are the ones that are at real risk as a result of the current market.

So, in short, in terms of the current issues facing oil and gas companies globally, Aminex should not be in such a bad place.

The market isn't always entirely logical and so it can't be helped that we are caught up in the wider turmoil. It is worth bearing in mind the level of risk that coronavirus, a global slowdown and falling oil and gas prices actually mean for Aminex - not that much in my view. Obviously, our main risk related to the granting of the licenses but that has been the case for some while now.

Don’t think so gaslady

Probably because they can’t afford the firm budget as it will be post farmout (currently ~$1.5m. Will soon be ~$40m). Hence if they know the farmout is likely to complete soon and they will be committed to their share, they need to take action quickly.

Oh I don't know...

Yesterday - Why Oil Stocks Are Tanking Today - https://www.fool.com/investing/2020/02/24/why-oil-stocks-are-tanking-today.aspx

Today - Global markets continue to slide on coronavirus fears– live updates - https://www.telegraph.co.uk/business/2020/02/25/markets-live-latest-news-pound-euro-ftse-100-live-updates

Aminex and gold are looking like the only reliable way to hedge against all of this chaos! Tongue in cheek of course ;-)

Another related article on this today: https://dailynews.co.tz/news/2020-02-255e54f032b2a4b

The article is about imported gas cylinders and states that: "Figures have clearly indicated that there has been a substantive rise in LPG consumption in the country with the importation rising from 20,000 metric tonnes in 2010 to 140,000 metric tonnes in 2018."

The original article yesterday about the gas cylinder factory planned for Tanzania said "We consider a plant of this nature a vital strategic investment. Once it becomes operational, we shall no longer import such tanks.”

So that's another 140,000 metric tonnes (+++ as demand will likely have risen further since 2018) of domestic Tanzanian gas that has to be supplied each year.

Regarding the perfectly reasonable speculation that today’s RNS may be a pump before a raise (CrustyPete and dunderhead), the following information should help. According to the Half Year Report:

Page 22 - “Cash at bank and in hand” as at 30 June 2019 was $2.028million”.

Page 2 - “we are pleased to report a reduction of 20% in the current half year costs from those incurred in the corresponding period in 2018 with further cost reductions expected as the changes made unwind through the remainder of 2019.”

Page 4 - "the Group’s gross administrative expenses for the period under review were US$2.05 million, a reduction of approximately 20% from the gross administrative expenses of US$2.54 million for the six months ended 30 June 2018. The reduction reflects the initial phase of cost savings which have continued into the second half of the year. Management has continued to maintain strict expenditure controls and, where possible, to reduce overhead costs".

Page 6 - "On 24 September 2019, Aminex and ARA entered into a binding heads of terms whereby ARA has agreed to provide a US$3 million advance in instalments to the Company, prior to the Completion of the Farm-Out".

Page 6 - "Based on the binding head of terms for the advance, the Directors concluded that the Group would have sufficient resources to continue as a going concern and meet its obligations as and when they fall due for a period of not less than 12 months from the date of approval of the condensed consolidated financial statements".

So, based upon the information above, I’d estimate that the $2.028m of cash at bank and in hand would be exhausted by about now based upon the administrative costs burn rate and we must be starting, or just about to start, to use the $3m by installments. All other things being equal, that should keep us going until around the end September this year.

By then of course we should have completed the farmout (resulting in a further $2m cash) and hopefully the tax dispute will be resolved (resulting in a further ~$3m net to Aminex). So, it doesn’t look like we would need a raise to keep the lights on IMHO.

Thanks for sharing CP

An important announcement this morning as they update the market on corporate and operations progress. They have agreed with APT that upon completion of the farm-out and the subsequent transfer of operatorship to APT that they will seek permission from the JV and the Government to move the contingent elements of the 2020 work programme into the firm budget. Importantly this would hopefully include the seismic acquisition to form part of the immediate work programme and no longer contingent on the award of a Ntorya Development licence.

The firm budget would include drilling of the Chikumbi-1 well and the total value of the contingent elements proposed to be be reclassified to firm is currently budgeted at approximately $40m gross for which Aminex would be fully covered.

Recent positive indications in-country show that following a period of reduced corporate engagement the government is re-engaging with the international business community to support the country’s power demands. This is also clear in the comments about the review of the PSA’s, formal extensions for the Mtwara and Nyuni Area licences and the approval of the Kiliwani North-1 remediation programme, it seems that in-country media reports suggest that the PSA review process is nearing completion.

Overall the comments from CEO Tom Mackay are very positive, most importantly ‘once these approvals are given we can quickly move into an operational phase and deliver first gas from Ntorya and begin remediation work on Kiliwani’. Whilst nothing can be taken for granted this is as encouraging news as shareholders might have hoped for at this time and shows that real progress is being made.