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Solo Oil boosted by Ntorya upgrade ahead of deal negotiations

Published: 06:16 04 Sep 2017 EDT

onshore drilling operation
It was a timely upgrade as far as Solo investors are concerned

Shares in Solo Oil PLC (LON:AEX) advanced around  7% at one point in Monday morning’s dealing after Aminex plc (LON:AEX), its partner in Tanzania, almost tripled its estimate for the gas resources at the Ntorya field.

Aminex, in a stock market statement, told investors that its new estimate sees some 1.3 trillion cubic feet of gas initially in place at the Ntorya project, up from prior estimates of 466 billion cubic feet.

Solo Oil owns a 25% interest in the gas discovery, while Aminex is driving the project with a 75% stake in the asset.

Advancing towards development

This major upgrade comes amid ongoing analysis of the results from Aminex’s recent and successful Ntorya-2 appraisal well, in addition to findings of a re-evaluation of existing 3D seismic data.

Perhaps significantly, Aminex highlighted that the upgraded 1.3 TCF estimate still only covers the Ntorya appraisal area and does not account for any of the resource potential in the surrounding exploration acreage.

Exploration aside, Aminex is presently working with consultant Baker Hughes to put together a commercialisation plan for the Ntorya resource.

The plan, along with an associated development plan for the Tanzania authorities, is expected to be ready in the near future – the company said ‘early September’.

"The updated modelling, mapping and corresponding resource numbers continue to confirm that the Ruvuma Basin is of significant importance to Tanzania and the company,” said Jay Bhattacherjee, Aminex chief executive.

“We continue to work directly with the Tanzania Petroleum Development Corporation to create an optimal development plan so as to begin gas production from the licence as quickly as possible."

Two key issues for Solo Oil investors

For Solo Oil investors there are two key points to consider. The first, and most obvious, is that the upgrade is inherently very positive and value adding news.

It is also, however, another marker in Aminex’s seemingly accelerated plan to take the Ntorya project into development – with a phased project eyed, starting with an early production system ahead of full field development.

Quickening the Ntorya timeline would, on the face of it, also be good news for Solo and its investors, albeit with the exception that the junior oil and gas firm is still working on strategies to fund its 25% stake in the project.

Solo’s stake doubled several years ago as Tullow Oil pulled out of the Ntorya project - effectively mid-way through the Ntorya-1 programme, before the two remaining partners decided to deepen the well for another target and hit gas.

It would be fair to say that 25% was more project equity than Solo would have ideally liked to have, and whilst it has so far kept pace funding the asset this far, a significant step up in capital budgets to facilitate a field development would be a challenging proposition.

This is no secret to Solo shareholders though, and the company has in recent months been consistent about its plans.

In June, Solo chairman Neil Ritson highlighted that the company was “seeking partners to farm-in to or acquire its interest in the project when a 25-year development licence is granted.”

The licence is anticipated later this year, when Aminex’s field development plan is expected to get rubber stamped by the Tanzanian authorities.

Quite whether Solo gets an entire ‘exit’ for its 25% or just a partial sale remains to be seen, nonetheless, the big new resource upgrade should (at least on paper) mean that the pay-off my now be substantially larger than before.

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on 21/7/17