SEEKING ALPHA.
Africa Oil Corporation: This Small Cap Has Continued To Perform Admirably Well
Jun. 4, 2020 12:04 PM ET|
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About: Africa Oil Corp. (AOIFF)
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Summary
Africa Oil Corporation, despite how punished it has been by the market, as a small cap oil producer, has continued to execute on its goals admirably well.
The company has continued to produce from its Kenyan assets and won a court ruling.
Additionally, the company's POGBV Nigerian assets are hedged through the worst of the oil crash (>$50 / barrel netback before the crash, $15 / barrel netback now).
The company's external portfolio approach should also provide it with more catalysts and minimal risks, despite capital spending cuts.
Africa Oil Corporation is a good investment at this time for a small speculative investment.
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Africa Oil Corporation (OTCPK:AOIFF) is a company that we've discussed several times before for shareholders. However, the company has been thrown the wayside as the oil crash has been much more difficult than anticipated. In fact, across the board, small cap oil producers have been punished incredibly hard.
Despite this, as we'll see in this article, the company is well positioned for an oil price recovery and has continued to execute well, making it a core recommended small cap holding. We anticipate in the coming years, the company will rapidly create and escalate a new policy of shareholder returns, with the ability to increase the company's share price significantly.
Africa Oil Corporation - Africa Oil Corporation
Africa Oil Corporation COVID-19 Response
It's unfortunate that the world has reached this point, however, all our articles are now forced to start by discussing the company's COVID-19 response, as COVID-19 has become one of the worst diseases to hit humankind.
Africa Oil Corporation Shareholder Update - Africa Oil Corporation Investor Presentation
Africa Oil Corporation has done an impressive job to maintain the safety of workers and revenue since the start of the oil crash. There are a number of incredibly important things worth paying attention to here. The first is, overall, the company is focused on keeping its workers safe. This is especially true in the company's Nigerian deepwater platforms that are providing growing income.
I do want to add several things to this. First is that the company has many thoughtful hedges in place. For example, the company's POGBV acquisition in the Nigerian deepwater, its largest by far, has 95% of 2020 production hedged at $66 / barrel and 28% of 2021 production hedged at $60 / barrel with most hedges in 1Q 2020. That means the company has almost a year of steady Nigerian deepwater cash flow left - enough time for markets to recover.
Lastly, the company has a number of other high impact exciting opportunities from its assets that it's invested in internationally. These opportunities provide mostly upside to the company with minimal downside - if these companies go bankrupt, it would just hold Africa Oil Corporation's minimum shareholdings in the company.
Africa Oil Corporation - Kenya Update
Let's discuss Africa Oil Corporation's Kenyan project and any updates worth paying attention to.
Africa Oil Corporation Kenyan Assets - Africa Oil Corporation Investor Presentation
Africa Oil Corporation has started production from its Kenyan assets, and the first cargo set sale at 240 thousand barrels. The company has already started production here at 2 thousand barrels / day. That's nothing significant, however, it does mean that the cash flow has begun. Unfortunately production won't grow without new test infrastructure.
The company's Kenyan assets are expected to provide long-term production for the company. The company's Phase 2 assets will start in the mid-2020s and continue until the late-2030s providing 110 thousand barrels / day of production. With the company's additional phase, it should provide the company with significant production into the early-2040s.
The FID still needs to be decided for the Kenyan project. At this point, given one of the main players (Tullow Oil's (OTCPK:TUWOY)) precarious financial position, I'm expecting the project to not have the FID go through in 2020 as originally planned. That could hurt the company's farm out agreements. However, in the immediate term, not having higher capital spending requirements might be a benefit.
I expect the company to continue its growth and this project, due to its potential, to eventually be built by the mid-2020s.
