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An Upcoming Oil Company With Impressive Assets And More Cash Than Equity
Jul. 2, 2018 4:27 PM ET|
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About: Africa Oil Corp. (AOIFF)
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Summary
Africa Oil Corporation is an Africa-based oil corporation with more cash + cash owed than equity.
The company has an impressive portfolio of assets, most importantly its assets in the South Lokichar Basin which should see first oil in several years.
The company is undergoing a new initiative to buy stakes in other promising projects. This should provide it with several high-reward potential projects.
Africa Oil Corporation (OTCPK:AOIFF) might be the most valuable upcoming oil company. The company has a market cap of less than $430 million while having $392 million of cash on hand, no debt, and $75 million of additional income from Maersk due in 2018. That means that the company will be able to continue to issue first oil without issuing additional equity. As we will see throughout this article, Africa Oil Corporation's impressive asset portfolio, new initiatives, and strong financials make it a high potential investment.
Africa Oil Corporation - Daily Ocean
Africa Oil Corporation Asset Portfolio
Africa Oil Corporation has an incredibly impressive asset portfolio that is primarily centered around the Lokichar Basin. The Lokichar Basin is in a remote part of Kenya and currently has estimated reserves of more than 600 million barrels.
Africa Oil Corporation Phase 1 - Africa Oil Corporation Investor Presentation
The South Lokichar field development will progress through three phases. The first of those phases (Phase 1) plans to focus on the Amosing and Ngamia Sweet Spots resulting in 60-80k barrels/day of production. Africa Oil Corporation has a 25% stake in the field here, meaning that the company's first oil in 2021/2022 will result in annual production attributable to the company of roughly 6.4 million barrels.
At current prices, with yet to be determined profit margins, that'll mean annual revenue for the company in the neighborhood of $500 million, not a bad spot for a company currently worth $430 million to reach in 3 years. Keep in mind that this company isn't your old, steady, and safe Exxon Mobil (NYSE:XOM). There are some risks here, however, the company has huge potential going forward.
Africa Oil Corporation plans to complete the front end engineering design in 2018 and has a target final investment decision date of 2019. That target final investment decision is the single most important thing to pay attention to for the company in the coming year. Should the final investment decision pass, the company should have fairly smooth sailing to first oil.
Going on further, if things go according to plan, the Northern Fields and exploration upside should allow the company to double production. That means a billion in annual revenue for Africa Oil Corporation, an incredible return. Most importantly, the company plans to fund this exploration and appraisal activity from cash flow, which should stop the company from needing to take on additional debt or issue equity.
The company anticipates that Phase 1 production will start in 2022 and continue on to Phase 2 production starting in 2025. That Phase 2 production starting in 2025 should continue to keep production stable until the late-2030s. That is an incredibly long production profile, and one that means once Africa Oil Corporation gets started, it could have many years of stable cash flow.
Africa Oil Corporation Project Development - Africa Oil Corporation Investor Presentation
Looking at the project development concept, we can see the rough plan. The company's NGAMIA and AMOSING fields send oil to a central processing facility which then sends the oil through an 18" pipeline to Lamu port. This is a nice simple model that will allow the company to gain strong margins, however, as of now, it's missing one key component that is the largest risk Africa Oil Corporation faces.
That pipeline doesn't exist. More importantly, it will cost an estimated $2 billion to build. That means, as of now, Africa Oil Corporation can't afford to build it. So it will have to receive support from the Kenyan government, or sponsorship from other companies, to complete this pipeline. Right now, this is looking good. TOTAL SA (NYSE:TOT), a $160 billion company has agreed to fund the pipeline.
TOTAL S.A. was actually originally planning to build the pipeline 2 years ago but backed out after security concerns. However, the company seems to have had its concerns alleviated by the Kenyan government for now. If things go according to plan, this pipeline should open in early-2021 and it's the second most important thing investors should pay attention to behind the final investment decision.
Africa Oil Corporation New Initiatives
On top of its main South Lokichar asset, Africa Oil Corporation has a number of other less important, but valuable assets. These other valuable assets stem from new initiatives the company has been taking in order to expand its asset portfolio.
Africa Oil Corporation New Initiatives - Africa Oil Corporation Investor Presentation
On top of Africa Oil Corporation's impressive South Lokichar asset, the company also has a portfolio approach to let it get access to other profitable assets. This portfolio approach involves the company investing in other companies with African oil assets. At the same time, the company is opening itself up to these growth opportunities without impacting its funding of the Kenya development project.
So far, the company has a 25% ownership interest in Impact Oil & Gas Limited, a private U.K. company, with an impressive portfolio of deep water exploration blocks and agreements with major oil companies. The company also has a 19.75% ownership interest in Eco-Atlantic Oil & Gas, with multiple high potential blocks in Namibia and Guyana.
Lastly, the company also has a 28% ownership interest in Africa Energy Corp., which as a strong inventory of exploration projects including a high potential TOTAL operated oil block in South Africa. As we can see here, the company has three high profile ownership stakes, stakes that provide the company with significant growth as they come online.
As an investor, these stakes excite me because they'll help spread out the company's risk without affecting the company's funding of the Kenya development project.
Africa Oil Corporation New Well Exposure - Africa Oil Corporation Investor Presentation
This table shows Africa Oil Corporation's interests as a result of investments in Africa Energy Company, Eco Atlantic, and Impact Oil & Gas. The company has exposure to ~6-7 high impact wells over the next two years, with minimal exposure to wells carried by majors, and a $31 million cost for the stake. The low cost for the stakes means that Africa Oil Corporation's downside risks are limited in this scenario.
Africa Oil Corporation Well Timeline - Africa Oil Corporation Investor Presentation
This shows a list of the potential drilling schedule. As we can see several wells are supposed to be drilled in 2019, with many more drilled in 2020-2021. These are all decently high impact wells, with the majority located in South Africa, one of the most stable regions for investment in all of Africa. That stability will help increase the reliability of cash flow from the wells, should they come online.
Overall, this shows Africa Oil Corporation's other valuable assets, which should help to support its cash flow and earnings. The company is diversifying itself from the South Lokichar Basin, without slowing that play down, which should help its success and cash flows to grow.
Africa Oil Corporation Strong Financials
We already discussed it some above, but Africa Oil Corporation has a strong financial position that will help it grow.
Africa Oil Corporation Financials - Africa Oil Corporation Investor Presentation
