Solo Oil has provided an update on the operational progress of three of its key assets, Ruvuma PSA, Kiliwani North Development Licence and Horse-Hill Development. In a nutshell, all three assets are progressing as planned, and we therefore maintain our valuation of £39m - which compares to its market capitalisation of £14m - and continue to classify the shares as a growth stock.
The Tanzania Petroleum Development Corporation (TPDC), the owner of all licenses for energy development in the country, has approved the one-year extension of the Mtwara Licence. The extension must now be approved by government ministers for it to take effect. Aminex has also announced that TPDC is supporting the transfer of drilling obligations to Mtwara (from Lindi) and is now seeking Ministerial consent. We understand that once consent is received, the drilling of the second appraisal well (Ntorya-2) will commence, thereby satisfying the appraisal drilling obligation and permitting the application of a 25-year development licence for the Ntorya discovery.
Gas production at the Kiliwani North-1 well has reached the expected optimal rate of 30 million standard feet per day (mmscfd) as part of the commissioning process. The commissioning process is expected to be concluded by the end of this month. Following that, the optimal flow rates will be determined before production starts.
The total oil in place (OIP) within the Upper Portland pay zone at the Horse-Hill 1 well has been significantly upgraded by 200% to 22.9 million barrels (mmbbls) per square metre. The upgrade comes on the back of a new petrophysical analysis by Nutech, the international specialist in the evaluation of oil plays. Given the positive flow test results, the operator is now preparing to apply for planning permission for an appraisal programme at Horse-Hill, with the application expected to take place in Q4 2016.
For Kiliwani North, the terms of Solo's sale and purchase agreement suggest a valuation for Solo's interest (7.175%) of $4.07m (or £2.81m). In relation to the Horse-Hill Development asset, Angus Energy sold its 12% interest in the Horse-Hill Development for £1.8m in April 2016, which values Solo’s 10% interest in the development at £1.5m. Assuming a net present value after tax to total proven gross gas reserves as a similar project (£0.93 per billion cubic feet for the Mnazi Bay Concession Area) suggests a value for Solo Oil’s Ntorya-1 discovery well of £35m. For illustrative purposes, a lower figure of £0.74 (20% discount) would suggest a valuation of £28m for Ruvuma.