Solo Oil has been informed that the Arreton Main discovery and Arreton Prospects, located in the south of the Isle of Wight, may contain aggregate gross best estimate oil in place of 219 million barrels (mmbbls). In other words, there is a 50% probability that there is oil in place of 219 mmbbls or more. We, therefore, see this news as highly positive, and note that there are similar prospects within the licence. Given that the project is not yet considered mature enough for commercial development, we continue to attach no value to the discovery in our valuation at this stage, but note the potential upside. The UK-listed investment company has also been advised of the termination of the recently announced proposed agreement to farm-out its Tanzania-based Ruvuma project to Bowleven, the African-focused oil & gas group, after the relevant parties were unable to agree terms. This means Solo will retain its 25% interest in the project (from 12.5%). Based on a relative and sum of the parts valuation, we continue to estimate a value of £22.07 million, or 32% upside to the current market capitalisation.
The oil in place was located on licence PEDL 331 and within the Purbeck, Portland and Inferior Oolite limestone reservoirs. Arreton Main consists of the historic Arreton-2 well, and Arreton Prospects consists of the Arreton North and South Prospects. The volumetric analysis was conducted by Xodus Group and it has been calculated that Solo’s net share of the Arreton Main and Arreton Prospects contain 4.7 mmbbls and 3.2 mmbbls in P50 contingent resources, respectively. In other words, there is a 50% probability that Solo’s net share of the project contains contingent resources of 7.9 mmbbls or more. The PEDL 331 licence start date is planned for April 2016, and the first exploration period of the licence will last for five years.
In arriving at the above company valuation of £22.07m, we have estimated a value for Solo Oil’s two key projects (Ruvuma PSA and Kiliwani North Development Licence) by taking the estimated NPV to total proven reserves for other, similar projects (Mnazi Bay Concession Area and Orca Exploration’s PSA, respectively) and applying them to the Solo’s projects. We note that the recent signing of the GSA means the Kiliwani North project is now considered mature enough for commercial development and, therefore, contingent resources will now be reclassified as reserves.