Africa Energy Signed Rig Contract for Block 2B

Africa Energy Corp. (Nasdaq First North: AEC) an oil and gas company with exploration assets offshore South Africa and Namibia, is pleased to announce that the joint venture partnership for Block 2B offshore South Africa has contracted the Island Innovator semi-submersible rig to drill the Gazania-1 well by October 2022. 

Garrett Soden, Africa Energy’s President and CEO, commented, “We are pleased to secure the Island Innovator rig to drill a high-impact oil exploration well this year on Block 2B. The block has significant contingent and prospective resources in shallow water close to shore and includes the A-J1 discovery from 1988 that flowed light sweet crude oil to surface. Gazania-1 will target two large prospects seven kilometers up-dip from A-J1 in the same basin as the recent Venus and Graff discoveries.”

Block 2B is located offshore South Africa in the Orange Basin where both Total and Shell recently announced significant oil and gas discoveries offshore Namibia. The block covers 3,062 square kilometers off the west coast of South Africa 300 kilometers north of Cape Town with water depths ranging from 50 to 200 meters. Oil was discovered and tested by Soekor in the A-J1 borehole drilled in 1988. Thick reservoir sandstones were intersected between 2,985 meters and 3,350 meters. The well was tested and flowed 191 barrels of oil per day of 36-degree API oil from a 10-meter sandstone interval at about 3,250 meters. Significant prospectivity has been identified over the entire A-J graben area using 686 square kilometers of 3D seismic data acquired in 2013.

Africa Energy has a 27.5% participating interest in Block 2B offshore South Africa. Block 2B is operated by a subsidiary of Azinam Limited (“Azinam”), which holds a 50% participating interest. A subsidiary of Panoro Energy ASA holds a 12.5% participating interest with Crown Energy AB indirectly holding the remaining 10%. Subject to completion of a definitive agreement announced on February 8, 2022, Eco (Atlantic) Oil & Gas Ltd. will acquire 100% of Azinam.

Why is this important

Africa Energy in the past traded well in exploration campaigns. I copy below a part of SpareBank research that describes this very well.

Pareto today´s take on the announcement

Rig secured for drilling at Gazania-1 by Oct’22
The partners at Block 2B offshore South Africa has secured the Island Innovator rig to drill the Gazania-1 exploration well by Oct’22. This follows Eco Atlantic’s recent entry into the block and is positive as the previous uncertainty on timing/likelihood of drilling now is removed. With an unrisked potential of >300 mill boe, we have previously estimated the value potential if the well is successful to be SEK 2.5-3.0/share net to Africa Energy and NOK 15/share net to Panoro (Brent USD 70/bbl long-term). Africa Energy is carried for the well through the farm-in agreement completed in April 2020. We have BUY recommendations on Africa Energy (TP SEK 4.50) and Panoro (TP NOK 33).  

Africa Energy – Increased news flow to trigger share price appreciation & Shift in energy sentiment more beneficial than most think Africa Energy’s share price has lagged vastly behind the sector in 2022 (up 7% vs 34% for our covered E&Ps). This is likely explained by no exposure to producing assets directly benefiting from the appreciation in spot prices and lack of news flow. With a rig now secured for exploration drilling later this year, submission of application for Production Right at Block 11B/12B by September and potential news on gas offtake, the latter should change going forward. In addition, we think Africa Energy benefits more from higher commodity prices than most think as it makes the Block 11B/12B development more attractive and provide potential future buyers of the company with ample financing capabilities. BUY/TP SEK 4.50

Summary :

We are very bullish AEC. It is our largest position in oil now. There are multiple catalysts in the very near future:

  • 2B drilling news-flow should push AEC higher – see the research above
  • Off-take agreement on 11B/12B should be announced any time now
  • After Off-take agreement Total will file an application for production rights.
  • After these two are achieved AEC will be in position to sell 11B/12B stake. This could therefore happen already this year

In my previous posts I provided more details including my valuation of Africa Energy stake in 11b/12B.

We are long AEC. We have been buying the parent company Africa Oil (AOI), as the stock sold off in the last three days, as investors expected a higher dividends.

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Disclosure: 

The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.

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