The following is a warts and all view of where Aminex is now (19th October 2018) it was written by the investor in an email to friends asking him about the value of investing in the company. Of course, it is one mans view and pretty much everything he speaks of information wise can be found on this blog or on the company website. Aminex_PLC He starts with his thoughts on the reasons of the slump in share price of the last year and hides nothing.
The share price is tanking because the income stream from the KN1 well has
dried up. There is a problem with the pressure in the well and the gas stopped
flowing. They thought that it was because of compartmentalisation (the gas is
in a pocket in the reservoir) but they now think this is because of a faulty
valve and are fixing it. They are also going back into the drill hole to
re-perforate (punch holes into) a different part of the drill to allow gas to
produce from a different area in the well. This remedial work has been delayed.
We can guess at why the delay has happened but what we now know is that Bounty
Oil (owner of about 8%) of the KN1 well could not pay their way. Aminex have
recently announced Bounty are in breach of their obligations and have absorbed
Bounty 8% of the licence into their own licence (effectively kicking Bounty
out). That has undoubtedly delayed remediation. When the market sees the income
stream restored it will mark the shares up.
The other reason for the tanking price (I believe) is the really gross delay at Ntorya in Ruvuma. This is incredibly frustrating, even for a believer like me. If you remember on this licence they drilled Ntorya 2 (N2) in March 2017. The share price went up ten times (from the lows) and hit over 7p. N2 discovered an enormous amount of gas. The changed geological data as a result of that drill updated the basin model and the estimates for how much gas they have were also updated. The estimates are a CPR (Competent Persons Report). The numbers for N2 with N1 are now at approximately 2 Trillion Cubic Feet of Gas Pmean GIIP (not proved) and about 800 Billion Cubic Feet (C2 from memory or in other words more established/proved). Those numbers are enormous. In the North Sea 200 BCF is described as enormous and very valuable and Aminex have multiples of that.
The next drill was meant to be back to back with N2 and was the one I was waiting for. It is called CH-1. It was not back to back and we are still waiting. Why this is so is unknown. I suspect it comes down to licence extensions, funding and other reasons. I do not believe it is the Directors fault though many do if you read the bulletin boards. My suspicion is that our main partner Solo could not pay for their 25% of the next drill.
In the meantime the Major Oil Company that owns 29% of Aminex shares is Zubair. (NB. 29% is the most you can own in a UK company before you are forced by rules to buy the whole company, which triggers at 30%). Zubair not only own 29% of Aminex directly but they have farmed into the Ruvuma licence (which covers N1, N2 and CH-1). Farm into means buy a proportion of the licence. They have taken 50% off Aminex, whose share is now 25%. In order to buy that they will pay $5m cash. They will also free carry Aminex (pay for everything) up to approximately $110m. They will pay for the seismic data collection, the next drill, the cost of infrastructure (building pipelines etc) up to $110m. By the time that Farmout carry is exhausted there will have been multiple wells drilled and production to the tune of millions of dollars to Aminex. The net effect of all that is that Aminex does not have to pay for a thing until they are receiving from gas sales a very large sum of money. That sort of deal is gold-dust to a small company like Aminex. To have raised $110m in the market on their own would have been impossible and if it was possible would have involved the issuing of billions of shares, diluting us original shareholders immensely.
Because Aminex are now debt free and do not have to raise money for their main project (Ruvuma) they are safe. A few years back they looked like they might go bust. They have cash in the bank (a few million) and are about to fix their KN1 income stream and receive $5m from Zubair. Compared to the risk profile of the Company when we all bought they are a completely different proposition. Not only is the balance sheet improved with debt paid off but the discovered gas at Ntorya (under the CPR numbers) is enormous.
The next problem the market does not like is the licence situation. On one view (it is not straightforward) the Ruvuma licence has lapsed and Aminex own nothing. But they have met all their commitments under their licence obligations and that being so, the Tanzanian authorities are legally obliged to extend the licence. My understanding is that the licence applied for is for a 25-year development/production licence. With that amount of gas, such a licence is very valuable. There is endless debate around about why the licence has not been renewed. Conspiracy theories abound and the market hates uncertainty. Experience suggests things take ages in Tanzania (you might remember the gas sales agreement delay for KN1). The two Tanzanian gas authorities have already approved the licence application and it is with the ministry awaiting sign off. We now have a clue about when that might take place.
The Farmout requires an Extraordinary General Meeting to approve it. That requires a circular. The circular (I believe) cannot be sent to shareholders until the licence has been granted because until that has been granted there is nothing to farm into or out. The company have said they expect the farmout to be approved by the end of November 2018. Which means the EGM must happen in November which means the circular must come out before that which means the licence must be granted soon.
If you believe the licence will not be granted then you have been a seller of the shares.
So by the end of November 2018 all that is due to happen. It is not guaranteed to happen, and the waiting has been brutal. I am the most frustrated with Aminex I have ever been but putting emotion to one side and on the assumption that they will get their licence Aminex has never been healthier in the (many) years I have held it.
Lots of retail investors (individuals not institutions) out there think the Farmout is a bad deal and too much of the licence has been given away. I very much disagree. The history of the 75% holding in Ruvuma was that Aminex always planned to hold 37%. They drilled N1 and Tullow oil walked away from their licence and gave their 37% to Aminex (in effect). Aminex then carried on and discovered all the gas they have. So, the 75% holding was almost an accident.
The demand for gas and power in Tanzania has grown enormously as industry floods in. They are building a pipeline to Uganda to export their gas. The current production cannot meet the demand. So, when production can be put onstream the market is there.
The CH-1 drill is targeting (we now know) another 900BCF gas approx. Looking at the geological maps in the presentations on the company’s website I thought it might be more. Aminex have a history (believe it or not) of under promising and over delivering on the gas found by the drill-bit. There is also a chance of oil. Oil would change everything to the upside. We are expecting a new CPR before the farmout and all of the numbers mentioned might increase with that news. Every CPR to date has increased the reserves estimates.
With all of that information I have been buying Aminex again from under 2p per share. No one can pick the bottom of a descent of share price and I am not trying to. But in my opinion the shares are ridiculously cheap for what they have on the assumption the licence and farmout are approved. I own millions more than I did and my holding has doubled. My plan is to sell some on the rise towards the CH1 drill results (hopefully that can be spudded before Xmas but that may be unlikely now) and then hold for those results, which on the original plan would have been June 2017. I am trying to resist the temptation to put a share price on it on good news because like everyone else I do not know. But it hit 7p on N2 drill results and that is smaller than CH1 and Aminex were self-funding at the time. They own 25% of the licence now not 75% but have a free carry. On production from 3 wells in Ruvuma (N1, N2 and CH1) and with large reserves in the ground booked the share price will be multiples of the current price. If the Zubairs wanted to buyout Aminex on good CH1 news (a distinct possibility) I would be very unhappy at the price being lower than 12p. If Aminex is allowed to remain independent and continue into the future they could be multiples of that.
I have not mentioned their other licence Nyuni as it is effectively dormant. However, with Ruvuma being paid for and run by Zubair they can re-activate Nyuni which has a 5TCF prospective resources and is very close to the enormous offshore discoveries that have been so famous over the years. It is very expensive to work offshore and Aminex have not yet farmed out Nyuni. But there is one lead (Pande West I think) that we know about because a major has discovered a lot of gas offshore and the reservoir extends into the Aminex area. Seismic data is the next plan and if Aminex can start proving that up it becomes valuable."
GLA
Tweeted By
edgar222
Aminexia Comment...
I would point out that the faulty valve was a symptom of the well being shut down while permissions were being sought to re-enter the well. I can confirm as far as is known at this point, it is currently in the remediation stage and therefore still expected to be producing again before Christmas this year.
I would substitute Full carry for Free carry as the consensus is
that by giving away the 50% in the farm-out deal it will technically not be
free. The fact is in the Joint Venture, Aminex will not be called on for further funds until a total of $140million has been spent on full field development.
In the case of the licence application of which the writer refers, I would point out that
there are in fact two separate licences both of which have been applied for and
supported by the relevant authorities.
As said they are now awaiting ministerial approval which according to
the PDSA agreement the minister has to agree to within 90 days of terms &
conditions being met see Production Share Agreement I will also add that there are a further two licences currently under review with a view to merging them into one to aid and save costings on the 3d seismic testing aimed at proving up the Nyuni area
As with any investment you are advised to do your own research.
Thanks to Edgar for allowing re-publication of his thoughts.