A lot has been said about the recent announcement of the Gazprombank cooperation. We saw a lot of speculation in Africa Energy forums. Below is my read of the situation.
Africa Energy owns 10% interest in Block 11B/12B, one of the most significant recent gas condensate discoveries offshore South Africa. The major shareholder in the Block 11B/12B and the operator of the field is Total Energies.
The Total has applied for production rights to the SA government, and the approval is expected in the middle of next year. Total has been engaged with relevant authorities to attempt to negotiate an offtake for the gas. Our base case is we should see the offtake agreement concluded next year as well. After that, Total will proceed to commercialisation. At that stage, Africa Energy would either sell its 10% stake in the Block or participate in its development.
There are potential off-takers for Total/Africa Energy gas from field 11B/12B Petro SA, Eskom, or independent off-takers in the form of Gas to Power Plants. Both Petro and Eskom are state-owned by the SA.
Eskom produces electricity by burning diesel. In June, Eskom announced a tender for converting its facilities from diesel to gas. This is positive for Total. Tender results are yet to be announced. When done, Eskom can be supplied gas by the Total consortium from block 11B/12B.
Petro SA has been a major SA supplier of diesel from their gas to diesel conversion facility. Mossgas Plant was the major supplier of diesel during the apartheid times.
Petro also supplies Eskom, which uses diesel to produce electricity.
Petro had been using gas from a nearby offshore field. Petro owns the offshore infrastructure used to transport the gas from the offshore field to its facilities. Total consortium assumes that they COULD be using Petro´s infrastructure to transport the gas from 11B/12B to Mossel Bay. Since late 2019, the nearby gas field has been exhausted, and the Petro SA facility is operating at a minimum level.
Petro SA ran a tender for an upgrade of its facilities. There were 20 participants in the tender. 19 participants were eliminated from the tender due to Petro´s requirement that the selected bidder must be at least partly government-owned. Only GazpromBank has satisfied the state-owned condition and won the bidding. The condition was widely criticised by SA opposition and local and international media.
The contract terms are confidential. What was reported in the press:
- The contract is only for USD200 million refurbishment of the Petro´s Mossel Bay plant
- GazpromBank will finance the refurbishment and will obtain a profit share from the plant operation
- No press report mentioned that GazpromBAnk would be supplying LNG to Petro
- No press report mentioned that the gas infrastructure used to transport gas from the offshore field to Mossel Bay would be part of the deal GazpromBank contract.
- The contract has one condition precedent – both parties can step out until FID is reached. That is expected in April. Due to the criticism of the tender process, any outcome may be possible.
In summary, nothing has changed in the business case for Total and Africa Energy shareholders. The contract only secures, that Petro would be well-positioned to be an offtake customer for the Total/Africa Energy consortium.
Our family office is Long Africa Energy. We believe when the Production Rights are granted, and the Offtake Agreement secured, the Africa Energy share price should be several times higher than the current levels.
Latest presentation:
https://africaenergycorp.com/site/assets/files/144888/aec_corp_pres_june_2023_final.pdf?3hwmcw
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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