Key Milestone Achieved

Solo has achieved first gas production at the Kiliwani North gas field, providing the company with its first significant production revenue and paving the way for it to receive an estimated $186k per month in cash flow. On another positive note, the initial flow test programme at the Horse Hill showed an aggregate dry oil rate of 1,688 bopd, which, according the operator, is the highest aggregated rate from any onshore UK exploration well. The tests also showed no clear indication of any reservoir pressure depletion. In addition, Solo has increased its stake in the Kiliwani North gas field to 8.425% (from 6.175%) for a total fee of $1.28 million, partly funded by an equity placing. A relative and sum-of-the-parts valuation based purely on Solo’s Ruvuma PSA and Kiliwani North Development Licence shows a valuation of £38.38m. Under our assumptions, we have increased Solo’s interest in the Ruvuma project to 25% (from 12.5%) following the termination of a farm out agreement (1st February 2016). With the demand for natural gas in Tanzania expected to soar, we classify the shares as a growth stock.

Kiliwani North Update

Initial gas production commenced from the KN-1 well on 4th April 2016, and the gas will be delivered to the Songo Songo processing plant, which is linked to the main national pipeline that takes gas to the Tanzanian market. Commissioning of the plant is expected to take place around 3 months from the start of April. Production is expected to reach a rate of 25-30 mmcfd.

Horse Hill Discovery Update

The stabilised dry oil rate was taken from three intervals over a five and a half day period. The three main zones tested were the Upper Portland, Upper Kimmeridge and Lower Kimmeridge zones. Analysis of the data is expected to be reported in the coming weeks.

Issue of equity

Solo has raised £800k through the issue of 320,000,000 new ordinary shares at a price of 0.25p per share. Following the issuance of the new shares, the share capital will increase to 5,836,830,571 ordinary shares.

Valuation

In arriving at the above company valuation, 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 Solo’s projects. We have provided no valuation for Horse-Hill at this stage as it is not yet considered mature enough for commercial development, but note the potential upside.