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From Upstream magazine
Three majors in last-minute dash to enter race for slice of Orange basin hotspot
Coveted South African exploration tract attracts more big suitors
27 November 2023 13:12 GMT Updated 29 November 2023 11:53 GMT
By Iain Esau in London
A last-minute burst of interest by multiple supermajors in a sought-after exploration block in South Africa’s sector of the prolific Orange basin will delay the conclusion of a farm-out process.
Block 3B/4B — an asset that could host 4 billion barrels of recoverable resources — is operated by Stockholm-listed independent Africa Oil, which together with its two partners are keen to farm out a combined 55% stake in the deep-water acreage.
No further info available.
Thanks for your response douginil. I'm not an analyst either but still here and surviving this downturn in sales price. I feel in two months a lot of new and positive info is coming at us.
Douginil, correct me if I'm wrong. AOC has a cash account of $201 million, a 5 bank credit facility of $200 million, and a 50% net to AOC from Prime of $525 million. Nearly a billion available. AOC book value is $2.12 We are way undervalued at $1.85+-. Dr. Tucker expressed an interest in supporting
the shareholders with Dividends and buybacks. Wouldn't an accretive investment be appropriate now or is AOC holding their cards real close to their vest?
Thanks douginil. I shooulda watched the presentation too. Audio stunk. You're right. A presentation such as this is a skill. (which i don't have, lol) But the team needs a professional presenter. Hope they communicate with us on a more timely basis too.
Listened to the audio of the conference call today. Poor quality sound system. Difficult accents to understand all that was said. Will wait for the report on company's website. Seems very positive tho.
FYI
Africa Oil GAAP EPS of $0.10; FY23 outlook confirmed
Nov. 15, 2023 8:03 AM ETAfrica Oil Corp. (AOIFF), AOI:CABy:
Meghavi Singh, SA News Editor
Africa Oil press release (OTCPK:AOIFF): Q3 GAAP EPS of $0.10.
Q3 2023 average daily WI production rate of 20,300 boepd was approximately 4% higher than Q2 2023 average of 19,500 boepd.
Achieved an average realized oil sales price of $84.5/bbl compared to the average Bloomberg Dated Brent price of $81.5/bbl for the offtake dates in July and August.
AOC’s cash and cash equivalents at September 30, 2023, of $201.5 million.
Full-Year 2023 Guidance: WI production (boepd) 18,500 – 21,500 Economic entitlement production (boepd) 20,500 – 23,500; Cash flow from operations (million) $250.0 – $330.0; Capital investment (million) $80.0 - $100.0.
Thanks "D"... Key takeaway: 9 months ended 9/30/2023 EPS .38 Cents per share.
This income during a relatively slow period of liftings.
Africa Oil: Invest In The 8th Largest Discovery Of The 21st Century
Jeremy Poland
Introduction to Africa Oil
Africa Oil Corp (TSX:AOI:CA) (OTCPK:AOIFF) is an upstream oil corporation that was founded in 1988 and headquartered in Vancouver, Canada. Its core lies in exploration assets located in the nascent and under-explored terrains
Market Cap
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Africa Oil Corp.'s Promising Future
The Value Portfolio
Africa Oil: Doubling Down
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© 2023 Seeking Alpha
From Seeking Alpha;
Now the future is one of growth. Clearly this company has above average risks due to the source of cash flow being in Nigeria. However, the debt free balance sheet and overall negative net debt (when consolidating Prime) appear to somewhat minimize that risk. The diversification into South Africa brings a much more supportive atmosphere for a cash flow source. That makes this company a strong buy consideration for those investors willing to accept the risks.
Thanks (D)..
You're welcome douginil...It is getting interesting... Now if I can live long enough to pick the fruit...
FYI
Africa Oil Other ownership interests.
Africa Energy. Shares outstanding 1,407,812,249.
AOC as of Jan 1/2023: 276,982,414 (19,67%)
Eco Atlantic: Shares outstanding 3567,348,680
AOC as of 6/30/2023: 54,941,744 (14.96%)
Impact (private) 991,132,898
AOC 12 of 6/30/20223: 306,358,936 (30.91%)
From Seeking Alpha: August 20, 2023/ O;d but useful reminder
A drilling campaign should increase production in Nigeria.
Africa Oil has already received more cash than it borrowed to obtain the interest in Nigerian production.
The company holds interests in three development-stage companies that have speculative upside potential.
AOIFF purchased interests from Eco Atlantic to increase its exposure to a South African discovery.
The evaluation of the Venus discovery is underway.
I am Long Player. I focus on Oil and Gas stocks. I’m a retired CPA, and have a MBA and MA. I lead the investing group Oil & Gas Value Research.
Africa Oil (OTCPK:AOIFF) recently announced a purchase from Eco Atlantic (OTCPK:ECAOF) of a material interest in some awarded blocks located in South Africa. This gives Eco Atlantic some badly needed cash because Eco Atlantic has no source of income otherwise. It also allows Africa Oil to concentrate in an area where the subsidiary Africa Energy (OTCPK:HPMCF) also has a considerable interest as well.
Equity Investments
The company has additional growth opportunities through other companies owned as shown below
Africa Oil Investments In Other Companies (Africa Oil Second Quarter 2023, Filed Earnings Report)
It needs to be noted that Africa Oil has a significant investment in the companies with which it has contracted (at one time or another) for either additional interests or to purchase more shares.
There are other companies within the Lundin Group of companies that have interests in these companies as well. Therefore, it is probably valid to consider that the Lundin Group of companies controls these companies that Africa Oil has invested in.
Africa Oil itself began as part of the Lundin Group of companies. Several key officers have held other positions within this group of companies. That close association is likely to continue well into the future. This relationship gives the company access to a lot more resources than would be typical for a company of this size.
This association also makes the transition to a new CEO far less risky than would be the case with a typical small company. Most new senior officers come from elsewhere in the Lundin Group of companies.
Africa Oil further announced its intention to withdraw from the Kenya projects. This further focuses the company on established production as well as the discovery in South Africa. The withdrawal focuses the company on the projects with the best cash flow chances while eliminating some more speculative prospects.
Africa Oil is a relatively small player in some offshore projects that tend to be very large. So far, management has proven to be very adept at right sizing the risk. This has allowed the company to grow considerably since it obtained a material income source. Now it appears that the company will expand into South Africa in the future to diversify into another revenue source.
Cash Flow Growth
Cash flow should grow at a material pace from the operator led program to drill more wells.
Africa Oil Nigerian Production Enhancements Planned (Africa Oil First Quarter 2023, Earnings Conference Call Slides)
The established production in Nigeria that provides all of the company cash flow should see considerable growth from the proposed campaign shown above. Free cash flow will be either non-existent or negative due to the investment required for this drilling plan. However, cash flow should climb as the program proceeds to enhance free cash flow significantly in the future.
Drilling already began for two water injection wells. The third well, a potential oil producer, has now begun drilling also.
The overall risk of this plan is considered less than is the case with pure exploration plays. There is still a reduced risk of dry wells or unexpected complications. But overall, the chances of a successful production increase are pretty high.
Finances
The company itself is debt free. Now the company it has an interest in (which is called Prime) does have some debt and also has just announced a refinancing of that debt.
However, the cash position has deteriorated somewhat from the first quarter. But it is still strong. Management does have a conservative note that the company may need financing in the future depending upon how things go. Management made the decision to advance some cash to Impact so that Impact has the money needed to fund some commitments. But this came at the same time as the drilling campaign in Nigeria got underway. Therefore, cash flow is at best tight until that drilling campaign completes.
The key is that this is a small company that is participating in some very large projects. That often means some creativity until the company gets larger. Fortunately, this company has the resources of the Lundin Group of companies to help out if the need arises.
The risk of course would be that other partners to Prime fail and the company would have more than expected liability. Right now, that does not appear to be a consideration as Prime does generate a fair amount of cash.
South AfricaOperators Of Nigerian Interests
The operators of the producing properties in Nigeria are Chevron (CVX) and TotalEnergies (TTE). Operators of this stature add credence to the project in an area that is probably considered riskier than most.
Since the production is offshore, this production is insulated from the onshore issues of Nigeria and therefore reduces the perceived risk of operating in Nigeria.
The government of Nigeria does support the industry. But it is also considered somewhat ineffective.
Management has noted several times that they have already received the purchase price of the interest back (and more). This is an important consideration when operating in an area with above average risk.
South Africa
The company does have an interest in a discovery and it has interests in some nearby prospects through its ownership of Africa Energy. The company has additional interests as well through its ownership of Eco Atlantic shares. The managing operator of the discovery is Total. The operator of the discovery has applied for an operating permit. That process will likely take about a year. Then it likely would take another several years before initial production is established.
Total is also drilling some extension wells and will proceed to test them.
Fortunately, Africa Oil has established production from its Nigeria interests that can be used to finance the discovery in South Africa to production. The debt free balance sheet would also allow for some debt as well should that be needed.
The risk is of course large cash needs in South Africa combined with large cash needs in Nigeria. While that currently appears to be unlikely to happen. The chance is definitely not zero.
South Africa is probably the country (along with Namibia next door) with the best infrastructure to support an oil industry on the African continent. The government is stable and comparable to European governments. An income source from this area would be more highly valued than the income from Nigeria.
Key Takeaways
Africa Oil has transitioned from a development stage company to one with substantial production through its interest in Prime. That interest will likely allow it to fully participate in the development of the South Africa discovery as well as potentially develop some other interests there should that prove to be a favorable way to go.
The current income source in Nigeria has repaid the debt incurred to obtain that interest (and more). Now there is a good possibility of more income through a drilling campaign by one of the operators. All this is important once the approval to bring the South African discovery to production happens. The South Africa project would of course then need considerable cash.
The extension of a lease in Nigeria has resulted in a reduction of future taxes owed. That amount turned out to be relatively larger. In fact it was far larger than any costs associated with the exit from Kenya.
Since Africa Oil does have a considerable income source, the risk to shareholders of dilution in the future is not great. Currently, there are several projects that have demanded cash. So far, that need has been met with cash on hand. There is a conservative warning in the financial statements that a possibility exists for the need for outside financing at some point in the future. The company can also choose to maintain its interest in the invested companies. Those companies have periodic financing needs as none of them have an income source.
Now the future is one of growth. Clearly this company has above average risks due to the source of cash flow being in Nigeria. However, the debt free balance sheet and overall negative net debt (when consolidating Prime) appear to somewhat minimize that risk. The diversification into South Africa brings a much more supportive atmosphere for a cash flow source. That makes this company a strong buy consideration for those investors willing to accept the risks.
Lots of talk on yahoo finance (conversations) regarding buy out or merger with other oil companies.They suggest: Kosmos energy. but debt $2.37B, BW Debt $415 MM, Tullow Debt 3.08BB abandoned in Kenya. AOC no debt. Would love to see them take over Impact Energy.
WELL!!! I guess there's no cure for insanity. Just grabbed 1,000 more shares.
Thankyou douginil. I missed this. The news could not be more timely.
A reminder: AOC's cash and cash equivalents at June 30, 2023, of $175.7 million.
Net income to AOC in Q2 2023 of $106.9 million...or .23 cents per share for the June quarter.
NICE DIVI.
Extremely perplexing indeed. But...Long and Strong.
Was hoping to retire within 6 months. Now looks like another year. But, all systems are still a GO! Nicce to hear from Dr. Tucker. More timely updates wouldn't hurt.
9/27/23 From Energy Voice (TIMELY)
AFRICA OIL ANNOUNCES POSITIVE UPDATE ON NAMIBIA OPERATIONS
News provided by
Africa Oil Corp.
28 Sep, 2023, 02:00 ET
VANCOUVER, BC, Sept. 28, 2023 /CNW/ - (TSX: AOI) (Nasdaq-Stockholm: AOI) – Africa Oil Corp. ("Africa Oil", "AOC" or the "Company") notes the press release by its investee company, Impact Oil and Gas Limited ("Impact") and is pleased to announce positive drill stem test ("DST") results for the Venus-1X well, the major light oil discovery on Block 2913B. The Company also provides further update on exploration and appraisal activities on Block 2913B and 2912, both located in the Orange Basin, offshore Namibia. View PDF Version
Highlights
AFRICA OIL ANNOUNCES POSITIVE UPDATE ON NAMIBIA OPERATIONS (CNW Group/Africa Oil Corp.)
The Deepsea Mira rig re-entered and side-tracked the Venus-1X discovery well (announced in February 2022) and flowed oil from the test with positive results.
The operator and its partners are now interpreting the results of the flow test and incorporating them into the development studies, which are expected to be confirmed with the flow test of Venus-1A in Q4'23.
The Venus-1A appraisal well results were positive having been successfully drilled, cored and logged by the Tungsten Explorer, approximately 13km north of the Venus-1X discovery well.
The Deepsea Mira rig will re-enter Venus-1A imminently to undertake a DST program.
Tungsten Explorer will mobilize to drill the Mangetti-1X exploration well on a prospect located in the northern part of Block 2913B.
Africa Oil President and CEO Dr. Roger Tucker commented: "The successful Venus-1X DST program is a major milestone in the Venus campaign and, if confirmed by Venus-1A DST results, supports the commercial development of this world-class light oil discovery. It is important to highlight that the opportunity here is not just about one discovery, and we expect that further work will be done to mature large-scale targets already identified on Block 2193B, including those to the south of Venus. We have an exciting work program ahead of us and together with our other interests in the Orange Basin, we have a very exciting and attractive opportunity set."
Block 2913B
The Venus discovery is a world class light oil and associated gas field, located in the Orange Basin, off the coast of southern Namibia. The Venus-1X well was drilled in 2022 and encountered high-quality light oil-bearing sandstone reservoir of Lower Cretaceous age. Following this discovery, preparations were made to side-track and perform a DST of the oil bearing reservoirs using the Deepsea Mira rig. The DST program began in early September and has now been concluded, with positive DST results.
The Venus-1A appraisal well, located approximately 13km northwest of the Venus-1X discovery well, was successfully drilled to a total depth of 6,146m, cored and logged using the Tungsten Explorer drillship. The Deepsea Mira rig will re-enter Venus-1A imminently to undertake a DST program.
The Tungsten Explorer drillship that was recently operating on Block 2912 will mobilize shortly to drill the Mangetti-1X well on Block 2913B, targeting a prospect located to the north of the Venus structure with the drilling expected to commence in October 2023.
Block 2912
The Nara-1X well is located approximately 30km northwest of the Venus-1X well and was drilled to a total depth of 6,181m using the Tungsten Explorer drillship. A full wireline logging program was completed, and a core taken. However, the Nara-1X well was not flow tested as it was deemed non-commercial. The Joint Venture is continuing to evaluate the results of Nara-1X.
Africa Oil holds a 31.0% shareholding in Impact and has an effective interest of 6.2% in Block 2913B and an effective interest of 5.9% in Block 2912.
Impact (through its wholly owned subsidiary, Impact Oil and Gas Namibia (Pty) Ltd) holds a 20% working interest in Block 2913B (PEL 56). PEL 56 is operated by TotalEnergies EP Namibia B.V ("TotalEnergies") which holds, a 40% working interest, and QatarEnergy and NAMOR respectively hold a 30% and 10% working interest in PEL 56.
Impact, through the same subsidiary, also holds an 18.89% working interest in Block 2912 (PEL 91), where it is partnered with TotalEnergies (Operator, with 37.78%), QatarEnergy (28.33%) and NAMCOR (15%).
About Africa Oil
Africa Oil Corp. is a Canadian oil and gas company with producing and development assets in deepwater Nigeria and an exploration/appraisal portfolio in west and south of Africa, as well as Guyana. The Company is listed on the Toronto Stock Exchange and on Nasdaq Stockholm under the symbol "AOI".
Additional Information
This information is information that Africa Oil is obliged to make public pursuant to the EU Market Abuse Regulation and the Swedish Financial Instruments Trading Act. The information was submitted for publication, through the agency of the contact person set out above, at 02:00 ET on September 28, 2023.
Good morning douginil. Difficult to say. Some profit taking, but huge volume. Just bot a few more shares. All fundamentals are still in place. AOC still has $100MM in cash, a 5 bank syndicate and Petroleum licenses extended for 20 years. Prospects are good for Drill stem tests by Total Energies. A small concern is that Impact Energy lacks the Cash to fund additional drilling opportunities (as near as I can tell). But AOC is in an interesting position to acquire more Impact shares to help fund drilling exploration. Can't wait to hear the ER on or about Nov 13-17th. Dividends are due on Friday 27th. September. Wondering about dividends this year from Prime. ALL IMO. Good luck to us.
Stolen from MAC on Yahoo Finance:
1) current development in Orange Basin - Total set to notify markets on the totality of their Venus and Nara prospects on their capital markets day sept 27. Shell is currently drilling the Jonker 1A (appraisal) a whooping 12km to the south of the initial hole.
2) TOTAL energies have reserved the Tungsten Drillship for another 110 days going into may 2024 with additional optionality until early 2025. Who knows where they will be drilling. My guess is orange basin - but where - maybe prove up the south african licenses just across the border ?
3) this should have a spillover effect on the sentiment around ECO's huge 3b4b license just across the border....
4) ongoing biddings for new PEL's in guyana - all blocks to the immediate south of Orinduik have bidders and we will know soon who they are and at what price. ECO has a dataroom on orinduik. The new bidders south of orinduik will have a huge bonus farming in orinduik, a lot of information, 3d seismic etc.
5) fangtouth deep is up for developement by exxon and is the best hint for the quality of the oil in the deeper layers in orinduik.
6) Gil Holzman will make a presentation on 'Seeing Promise in Guyana' at the World Energies Summit in London on Sept 27.
It's coming .... i want to be in pole position when it does.
I AGREE WITH MAC. Furthermore, Tungsten Explorer has moved about 100/200 miles South of Walvis Bay, Namibia to seek the extension of this oil field. If they find oil further south, that means the Orange Basin is probably the most gigantic field ever.
You're welcome douginil. Daughter ( a Technical analyst) Very bullish signals from AOIFF.
27 September...TTE (Total Energies reports on Venus and Nara. Hopefully massive. Impact owns much of this and we own a percentage of Impact.
From Seeking Alpha: Sept 17.2023/ Motley Fool
FYI:
Africa Oil Corporation (TSX:AOI:CA), (OTCPK:AOIFF) is a small-to-mid-cap oil company that we've discussed numerous times. The company has had a tumultuous journey. However, the company has cleaned up its positioning substantially, and as we'll see throughout this article, it has the ability to generate substantial shareholder returns.
History
Africa Oil Corporation has an interesting history.
The company started trying to make oil production in Kenya come alive. It hit the point with its partners that it was producing and trucking oil. Unfortunately, it was unable to build sufficient takeaway infrastructure, with a proposed pipeline costing more than $1 billion. An inability to solve that meant that the company recently backed away from the project.
However, a unique opportunity stumbled on the company's plate. It managed, during uncertainty about oil portfolios during COVID-19, to buy a 50% shareholding in Prime Oil and Gas. That was an incredibly profitable acquisition, especially with Russia's invasion of Ukraine, that showed the company's financial skills.
Now we are at an inflection. The company has some new assets that it's working on developing, but whether that pans out as Prime Oil and Gas tones down, remains to be seen.
Financial Results
The company had strong financial results for the quarter.
Africa Oil Corporation
The company maintains a strong cash position and earned $106.9 million in net income. That came as it got additional payouts from Prime Oil and Gas which represents its only source of income. At the same time, Prime Oil and Gas' net debt remains incredibly manageable and backed by reserves. The company has worked to clean up that balance sheet enabling dividends.
It's worth noting that the company made this acquisition just a few years ago, and it's already paid back the entire acquisition price. That's an indication of the strength of the deal.
Guidance
The company's guidance indicates a potential risk.
The company's production has concurrently dropped, a legacy of the fact that the company purchased legacy assets. Production is line with management guidance, but it is down noticeably YoY. FCF does remain strong at an estimated $200+ million for the year, supported by higher crude oil prices recently.
The company is in a much better but similar position to where it was with its Kenyan assets several years ago. Its existing assets are getting weaker and the company needs to find an alternative source of production. It has some exciting discoveries, but they'll take years to commercialize. In the meantime cash flow and driving shareholder returns will become tougher.
Oil Discoveries
The company has made some exciting oil discoveries that could help its long-term shareholder returns.
The massive discovery could be a "company maker" at a minimum of 3 billion barrels. Additional drilling is being done to define the limits of the asset. The strength of the asset is such that there are now two companies drilling there. The company participated in Impact's capital raise, and has a 6% stake in the blocks that could soon be producing hundreds of thousands of barrels / day.
That stake, in our view, means the potential of thousands of barrels / day of production, if not tens of thousands, for Africa Oil Corporation. The project will likely start with a single FPSO and grow from there.
Shareholder Return Potential
Putting this all together, Africa Oil Corporation has the ability to drive substantial shareholder returns.
The company has a $1.1 billion USD market capitalization. Prime Oil and Gas' debt is non-recourse to the company. The company pays out an annualized dividend at roughly 2%. The company has continued to receive dividends from Prime Oil and Gas, an acquisition that's been paid off, at a double digit yield for the company.
We expect the company to opportunistically repurchase shares and maintain its overall asset strength. The company halted share repurchases after prices dropped in 2022, but it maintains the financial strength to repurchase shares. We'd like to see it ramp up its share repurchases.
Thesis Risk
The largest risk to our thesis is crude oil prices. The company has been heavily supported by OPEC+ and its commitment to keep production lower, boosting prices. However, that could change, and so could the long-term potential of the industry. Replacement ratios helps, but we expect the industry to be dramatically different in a few decades, hurting its long-term potential.
Conclusion
Africa Oil Corporation is at another crossroads, its first major crossroads since the Prime Oil and Gas acquisition. That acquisition represented the company's best decision in its history and made up for some poor decisions made with the company's assets in Kenya and its plan to produce there, a plan that it finally gave up on.
The company has managed to pay off that entire acquisition and now it needs to shift towards shareholder returns. It also needs to plan for the future as the asset declines. The Venus discovery has incredibly high potential and drilling is continuing there. It needs to see a path to starting production, but once it does, we can see the asset being incredibly valuable, making the company a strong investment.
.
Upstreamonline.com
I hope they are positive and supportive.
To the old timers here. Daughter is a technical analyst. Works with informal partners in the U.S. and U.K. She is using her charts to analyze Africa Oil. Will be intresting to see what she can add to fundamental analysis plus news over the next 60 days and ER.
Important moves lately. modest volume. But breaking out of an ascending triangle pattern is bullish. We break above $2.61 with good news, then $2.75 and $3.00. Then people start paying serious focus on Africa Oil.
Old but informative. I hope Africa Oil closes the door permanently on Kenya. A failed government IMO.
News Release Issued: Dec 2, 2022 (5:30pm EST)
AFRICA OIL - KENYA HIGH COURT TAX APPEAL UPDATE
VANCOUVER, BC, Dec. 2, 2022 /CNW/ - (TSX: AOI) (Nasdaq-Stockholm: AOI) – Africa Oil Corp. ("AOI", "Africa Oil" or "the Company") provides an update on its appeal process in relation to Kenya Revenue Authority's ("KRA") corporate income tax ("CIT") and value added tax ("VAT") assessments, made in connection with farmout transactions completed during the period of 2012 to 2017. View PDF Version
On April 8, 2020, Africa Oil announced that Kenya Tax Appeals Tribunal ("TAT") had ruled on the Company's appeal related to KRA's CIT and VAT assessments, made in connection with farmout transactions completed during the period of 2012 to 2017. TAT ruled in favour of the Company with regards to the CIT assessments and in favour of KRA with regards to the VAT assessments. Subsequently, Africa Oil filed an appeal with the High Court of Kenya to challenge the VAT decision and KRA filed an appeal in relation to the CIT decision.
On 30 November 2022, the High Court of Kenya announced its decisions on the Company's Tax Appeal Case Number 024 (consolidated with KRA's Tax Appeal Case Number 051), and the judgment was made available to the Company yesterday. The Company's appeal with regard to the VAT assessment was partly successful and the High Court concluded that the Company owes VAT in an amount of Kenyan Shillings 2,293,334,065 (approximately US$ 18.7 million).
The KRA's appeal with regard to the CIT decision was partly successful and the High Court concluded that the KRA was correct to disallow certain costs claimed by the Company; however, the High Court's decision on the KRA's appeal with regards to CIT is not expected to have a material cashflow impact to the Company.
Africa Oil is taking legal advice on the options available to it in view of this decision, including the option to appeal.
About Africa Oil
Africa Oil Corp. is a Canadian oil and gas company with producing and development assets in deepwater Nigeria; development assets in Kenya; and an exploration/appraisal portfolio in Africa and Guyana. The Company is listed on the Toronto Stock Exchange and on Nasdaq Stockholm under the symbol "AOI".
Thanks farrell90...
No prob douginil...
Africa Oil: From Seeking Alpha:
Africa Oil: Doubling Down
Aug. 21, 2023 4:56 AM ETAfrica Oil Corp. (AOI:CA), AOIFFAFE:CA, CVX, ECAOF, EOG:CA, HPMCF, TTE, TTFNF25 Comments
Long Player profile picture
Long Player
Investing Group Leader
Summary
A drilling campaign should increase production in Nigeria.
Africa Oil has already received more cash than it borrowed to obtain the interest in Nigerian production.
The company holds interests in three development-stage companies that have speculative upside potential.
AOIFF purchased interests from Eco Atlantic to increase its exposure to a South African discovery.
The evaluation of the Venus discovery is underway.
I am Long Player. I focus on Oil and Gas stocks. I’m a retired CPA, and have a MBA and MA. I lead the investing group Oil & Gas Value Research.
Jeremy Poland
Africa Oil (OTCPK:AOIFF) recently announced a purchase from Eco Atlantic (OTCPK:ECAOF) of a material interest in some awarded blocks located in South Africa. This gives Eco Atlantic some badly needed cash because Eco Atlantic has no source of income otherwise. It also allows Africa Oil to concentrate in an area where the subsidiary Africa Energy (OTCPK:HPMCF) also has a considerable interest as well.
Equity Investments
The company has additional growth opportunities through other companies owned as shown below:
Africa Oil Investments In Other Companies (Africa Oil Second Quarter 2023, Filed Earnings Report)
It needs to be noted that Africa Oil has a significant investment in the companies with which it has contracted (at one time or another) for either additional interests or to purchase more shares.
There are other companies within the Lundin Group of companies that have interests in these companies as well. Therefore, it is probably valid to consider that the Lundin Group of companies controls these companies that Africa Oil has invested in.
Africa Oil itself began as part of the Lundin Group of companies. Several key officers have held other positions within this group of companies. That close association is likely to continue well into the future. This relationship gives the company access to a lot more resources than would be typical for a company of this size.
This association also makes the transition to a new CEO far less risky than would be the case with a typical small company. Most new senior officers come from elsewhere in the Lundin Group of companies.
Africa Oil further announced its intention to withdraw from the Kenya projects. This further focuses the company on established production as well as the discovery in South Africa. The withdrawal focuses the company on the projects with the best cash flow chances while eliminating some more speculative prospects.
Africa Oil is a relatively small player in some offshore projects that tend to be very large. So far, management has proven to be very adept at right sizing the risk. This has allowed the company to grow considerably since it obtained a material income source. Now it appears that the company will expand into South Africa in the future to diversify into another revenue source.
Cash Flow Growth
Cash flow should grow at a material pace from the operator led program to drill more wells.
Africa Oil Nigerian Production Enhancements Planned
Africa Oil Nigerian Production Enhancements Planned (Africa Oil First Quarter 2023, Earnings Conference Call Slides)
The established production in Nigeria that provides all of the company cash flow should see considerable growth from the proposed campaign shown above. Free cash flow will be either non-existent or negative due to the investment required for this drilling plan. However, cash flow should climb as the program proceeds to enhance free cash flow significantly in the future.
Drilling already began for two water injection wells. The third well, a potential oil producer, has now begun drilling also.
The overall risk of this plan is considered less than is the case with pure exploration plays. There is still a reduced risk of dry wells or unexpected complications. But overall, the chances of a successful production increase are pretty high.
Operators Of Nigerian Interests
The operators of the producing properties in Nigeria are Chevron (CVX) and TotalEnergies (TTE). Operators of this stature add credence to the project in an area that is probably considered riskier than most.
Since the production is offshore, this production is insulated from the onshore issues of Nigeria and therefore reduces the perceived risk of operating in Nigeria.
The government of Nigeria does support the industry. But it is also considered somewhat ineffective.
Management has noted several times that they have already received the purchase price of the interest back (and more). This is an important consideration when operating in an area with above average risk.
Finances
The company itself is debt free. Now the company it has an interest in (which is called Prime) does have some debt and also has just announced a refinancing of that debt.
However, the cash position has deteriorated somewhat from the first quarter. But it is still strong. Management does have a conservative note that the company may need financing in the future depending upon how things go. Management made the decision to advance some cash to Impact so that Impact has the money needed to fund some commitments. But this came at the same time as the drilling campaign in Nigeria got underway. Therefore, cash flow is at best tight until that drilling campaign completes.
The key is that this is a small company that is participating in some very large projects. That often means some creativity until the company gets larger. Fortunately, this company has the resources of the Lundin Group of companies to help out if the need arises.
The risk of course would be that other partners to Prime fail and the company would have more than expected liability. Right now, that does not appear to be a consideration as Prime does generate a fair amount of cash.
South Africa
The company does have an interest in a discovery and it has interests in some nearby prospects through its ownership of Africa Energy. The company has additional interests as well through its ownership of Eco Atlantic shares. The managing operator of the discovery is Total. The operator of the discovery has applied for an operating permit. That process will likely take about a year. Then it likely would take another several years before initial production is established.
Total is also drilling some extension wells and will proceed to test them.
Fortunately, Africa Oil has established production from its Nigeria interests that can be used to finance the discovery in South Africa to production. The debt free balance sheet would also allow for some debt as well should that be needed.
The risk is of course large cash needs in South Africa combined with large cash needs in Nigeria. While that currently appears to be unlikely to happen. The chance is definitely not zero.
South Africa is probably the country (along with Namibia next door) with the best infrastructure to support an oil industry on the African continent. The government is stable and comparable to European governments. An income source from this area would be more highly valued than the income from Nigeria.
Key Takeaways
Africa Oil has transitioned from a development stage company to one with substantial production through its interest in Prime. That interest will likely allow it to fully participate in the development of the South Africa discovery as well as potentially develop some other interests there should that prove to be a favorable way to go.
The current income source in Nigeria has repaid the debt incurred to obtain that interest (and more). Now there is a good possibility of more income through a drilling campaign by one of the operators. All this is important once the approval to bring the South African discovery to production happens. The South Africa project would of course then need considerable cash.
The extension of a lease in Nigeria has resulted in a reduction of future taxes owed. That amount turned out to be relatively larger. In fact it was far larger than any costs associated with the exit from Kenya.
Since Africa Oil does have a considerable income source, the risk to shareholders of dilution in the future is not great. Currently, there are several projects that have demanded cash. So far, that need has been met with cash on hand. There is a conservative warning in the financial statements that a possibility exists for the need for outside financing at some point in the future. The company can also choose to maintain its interest in the invested companies. Those companies have periodic financing needs as none of them have an income source.
Now the future is one of growth. Clearly this company has above average risks due to the source of cash flow being in Nigeria. However, the debt free balance sheet and overall negative net debt (when consolidating Prime) appear to somewhat minimize that risk. The diversification into South Africa brings a much more supportive atmosphere for a cash flow source. That makes this company a strong buy consideration for those investors willing to accept the risks.
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Long Player believes oil and gas is a boom-bust, cyclical industry. It takes patience, and it certainly helps to have experience. He has been focusing on this industry for years.
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Simply Wall St
Wed, August 16, 2023 at 2:54 AM HST
In this article:
AOIFF
-1.5184%
The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Africa Oil Corp. (TSE:AOI) share price has soared 180% in the last three years. That sort of return is as solid as granite. On top of that, the share price is up 21% in about a quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Africa Oil became profitable within the last three years. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.
We know that Africa Oil has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Africa Oil the TSR over the last 3 years was 191%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that Africa Oil has rewarded shareholders with a total shareholder return of 31% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 22%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important.
Thanks douginil. So compelling an investment. Dr. Tucker did not discuss any buybacks though. ???
A very good quarter gents. .23 for 2nd quarter EPS and .28 cents for six months. Annualized out at .56 cents per share projected. Pretty good IMO.
Thanks for the info douginil. There's almost a gag order on AOIFF regarding latest news, etc.
WOW! Africa Oil (AOI.TO) on Toronto Stock Exchange. Normal daily volume is 397,000. Today's volume was 837,000. Something's up.
Anybody know today's actual volume of shares traded. Yahoo show only 18,000. Gotta be wrong.