THE RNS
Transformational Ruvuma Farm-Out
Aminex is pleased to announce that its wholly-owned
subsidiary, Ndovu Resources Limited, has signed a binding farm-out agreement
("Farm-Out") with The Zubair Corporation LLC ("Zubair"). Zubair plans to assign its interest in the
Farm-Out to ARA Petroleum Tanzania Ltd (a company under formation)
("APT"), which will be an affiliate of Eclipse Investments LLC
("Eclipse"), the Company's largest shareholder. Subject to the detailed terms set out in the
Farm-Out agreement, it is intended that the Farm-Out will accelerate the
development of the Ntorya project, carry Aminex through to a minimum gross
production rate of 40 MMcf/d and be self-funded through a full field
development project.
Deal Summary
In exchange for a 50% working interest in the Ruvuma PSA,
APT will become operator and will conduct the following minimum work programme:
Drill, complete, and test Chikumbi-1 (formally Ntorya-3) as
soon as reasonably practicable
Acquire, process and interpret 3D seismic over a minimum of
200 km2 within the Ntorya area, which is understood to be the first time 3D
seismic has been acquired onshore Tanzania
Establish an Early Production System to achieve accelerated
first gas to a minimum gross rate of 40 MMcf/d (equivalent to approximately
6,700 bbls/d)
Pay Aminex $5 million cash in two tranches, $3 million
payable on closing and the remaining $2 million 180 days later
Fully carry Aminex for its share of costs up to $35 million
in respect of its remaining 25% interest (post-transaction) (the "Aminex
Carry"), which implies a potential expenditure during the carry period of
up to $105 million for the aggregate 75% working interest held by APT and
Aminex
In the event that the minimum production target of 40 MMcf/d
is achieved prior to Aminex's 25% interest having been carried for the full $35
million, APT will assign one quarter of its share of profit gas to pay the
unspent Carry amount until the full $35 million is realised by Aminex
The Board of Aminex believes that the Farm-Out will
accelerate development of the Company's principal asset and substantially
reduce project and other risks. The
Company will retain a 25% interest in the Ruvuma PSA which includes Ntorya's
1.87 TCF (311 million boe) Pmean gas initially in place (2017 RPS Energy
Consultants Limited report) and which is expected to be developed without the
need for new funding by Aminex.
The Farm-Out constitutes a Class 1 and a related party
transaction pursuant to the listing rules of Euronext Dublin and the Financial
Conduct Authority and therefore requires the approval of Aminex shareholders. A circular will be posted to shareholders to
convene an extraordinary general meeting which will be held in due course to
approve the Farm-Out. Â The Farm-Out is also conditional upon Tanzanian
government and other approvals. Â The Farm-Out Agreement is expected to be
completed prior to 30 November 2018.
Jay Bhattacherjee, CEO of Aminex said:
"With the Ntorya project carried to a minimum level of
production it is now expected that the Company will be self-funded for further
development. Aminex continues to develop
its Kiliwani and Nyuni assets and is undertaking a review of other
opportunities which will deliver robust shareholder returns."
Sultan Al-Ghaithi, CEO of ARA Petroleum LLC said:
"Today's announcement emphasises our firm belief in the
Aminex portfolio and in Tanzania, where the Zubair Corporation group of
companies has existing business interests and enjoys strong relationships and
an excellent reputation. We look forward to continuing to work with Aminex and
the Tanzanian government to help bring forward development of this nationally
important asset."
Analysis
The following table has been put together making certain
assumptions as to cost incurred to reach the 40MMcf/d. I have used these rounded figures purely to
demonstrate easily where this could place the company in receiving the value
from the farm out. I have assumed a
drilling cost of $15million and costs to build and connect the pipeline (early
production system) to be a further $25 million.
|
Potential Spend
|
APT 50%
|
Aminex 25%
|
Solo 25%
|
|
$140,000,000
|
$70,000,000
|
$35,000,000
|
$35,000,000
|
|
Assuming successful CH1 achieve 40 MMcf/d (Much more is expected)
& Pipeline (early production) cost to tie in come in at $40,000,000 The
following applies…
|
|||
|
Shared Cost
|
|
|
|
|
$40,000,000
|
$20,000,000
|
$10,000,000
|
$10,000,000
|
|
Profit @
|
Profit
Share
|
||
|
$200,000,000
|
$100,000,000
|
$50,000,000
|
$50,000,000
|
|
¼ APT profit share paid over re unspent carry. It is assumed this would be paid in stages as profit rises
|
- 25,000,000
|
+$25,000,000
|
|
|
|
$75,000,000
|
$75,000,000
|
$50,000,000
|
|
2 Tranche Cash
|
|
$5,000,000
|
|
|
Total
|
$75,000,000
|
$80,000,000
|
$50,000,000
|
The bottom line above shows that Aminex is still ahead in
profit terms until we reach group profit of $200 million. It is only after this
point that APT will be the greater beneficiary and that will be a few years
down the line!
When comparing that to the SP of 3.5p where we sat steadily prior
to the issues at Kilwani, (producing only 15MMscf/d), producing even the lowest
anticipated figure of 40MMcf/d will more than double the income of Aminex.
Based on those same 40MMcf/d remaining the same until 1.87
tcf has been removed from the ground it will provide 132 years of consistent profit
making.
As seismic and the further drilling program develops the
field further, this will only increase the revenues as time goes by. (Note the actual spend will differ dependent on the schedule of these other works)
All this takes no account of the potential for Oil, which
would only add further value if commercial quantities are proved up!
While I, as did many others feel we should have drilled when
we had the money, it was quite apparent at the AGM that to board never expected
such a kick in the teeth from Kiliwani which has quite obviously affected the
financial balance. While I fully accept that on the surface, this deal appeared
to be a cheap sell out and I agree that we should have been looking for much more,
now I have analysed the figures properly, I feel I can throw my support behind
the deal completely.
While we all anticipate a successful CH1 drill and hope to
find oil, there really is no guarantee it wouldn’t be a duster. Now if shareholders agree to secure this farm
out, Aminex will be in what I imagine is a rare free carry position with a
company that certainly has the finance and armoury to pull this off.
There are people, myself amongst them, who feel or felt that
we should go back and try to put a counter proposal to obtain another $10million
or so, however, I will now distance myself from that on the basis that if
shareholders gain support for that action, it will require a possible further
six months of negotiations to take place, which may or may not be
successful. With the existing upfront
tranches, during that time the company could have already completed remediation
works at Kiliwani (it became clear the required machinery is in country) and APT
could have made a successful drill at CH1 & be readying for the pipeline installation. I feel that to have such a delay would cost
more in stuttering SP price than the extra $10million that may or may not be
gained. It would of course mean the company’s
profitability comes six months earlier which would be beneficial to all
concerned.
If shareholders choose to seek a better deal then I would see
the effort and delay would need to be aiming for a figure of at least
$100milion and though personally I feel that would have been a fairer price,
overall, realistically at this stage, that will not be achieved in a million
years. So, for the sake of yourself and
fellow shareholders I urge you to get behind the deal and let the company move
forward.
I see good value for both mid and long term investors and along the way there will be many key SP driving moments as various milestones are reached.
For the sake of external readers. The above is my own opinion complied from the research I have done. I do in fact hold shares
in the company, so please do your own research and come to your own conclusions