Solo Oil is a UK-listed investment company that is focused on exploration, development and production oil and gas assets, primarily located in Africa. It currently has holdings in six key projects, with the Kiliwani North Development Licence and Ruvuma Petroleum Sharing Agreement (PSA) assets, both located in Tanzania, representing the most significant and actively pursued investments. Competent Persons Reports showed that the Ruvuma PSA asset has an estimated gross proven discovered and undiscovered gas in place of 4.17 trillion cubic feet (tcf) while the Kilwani North Development Licence has an estimated gross proven gas resource (1P) of 44 billion cubic feet (bcf), of which 28 bcf has been attributed as best estimate contingent resources. Based on a relative and sum of the parts valuation, we estimate a value of £22.07 million or upside to its current market capitalisation of 32%.
On completion of a farmout agreement (expected 1st January 2016), Solo Oil will hold a 12.5% interest in the Ruvuma PSA - located in the south-east of Tanzania and covering c.3,447 square kilometres, of which c.90% lies onshore and the balance offshore. The Ruvuma Basin PSA includes two specific, adjoining licence areas, known as Lindi and Mtwara. In addition, Solo Oil currently holds a 6.5% working interest in the Kilwani North Development Licence (“KNDL”) on Songo Songo Island, Tanzania, and has an option to increase its interest by 6.5%, via a payment of $3.5 million, once a gas sales agreement (GSA) is signed. The KNDL contains the Kiliwani North field, which is expected to start production in 2015. The initial off-take rate from the Kiliwani North-1 (KN-1) well has been estimated at up to 30 million standard cubic feet per day (mmscfd).
As of 2013, the total discovered natural gas reserves in Tanzania amounted to 46.5tcf, of which 17% was discovered from the onshore fields of Songo Songo, Mnazi Bay, Mkuranga, Kiliwani North and Ntorya, and the remaining resources were discovered offshore in deep waters between 2010 and 2013.
For our valuation, we have attempted to estimate a value for Solo Oil’s two key projects (Ruvuma PSA and Kilwani North Development Licence) by taking the estimated net present value to total proven reserves for other, similar projects (Mnazi Bay Concession Area and Orca Exploration’s PSA, respectively) and applying them to the Solo Oil projects. We feel that our assumptions are conservative as they do not include any of Solo Oil’s other projects and only focus on proven resources. Furthermore, our Ruvuma PSA valuation relates only to the Ntorya-1 discovery well.