Anglo African Oil & Gas to IPO on AIM early-March


We take a look at Anglo African Oil & Gas, the latest in a line of Oil & Gas IPOs due to hit AIM this year (expected to trade week commencing 6 March 2017).

Anglo African Oil & Gas (AAOG) has agreed to acquire Petro Kouilou S.A (PK) from Sister Holding SAS. PK has a 56% share of the Tilapia field, a near offshore oil field producing approximately 38 barrels of oil per day (bopd).

AAOG plans to acquire a 56% stake in the Tilapia licence for a cash consideration of US$2.5m plus 20% of the shares in the enlarged group. Post-acquisition, AAOG will conduct a workover programme on the existing well and then drill two new wells in order to test the deeper potential in the licence. The licence has three reservoirs of interest: Tilapia, Mengo and Djeno.

AAOG’s strategy is to workover the existing wells in the Tilapia field at a cost of US$300,000 in order to increase production up to 250bbl/d and to then drill two new wells at a cost of US$6m in the Mengo and Djeno sands in order to prove up reserves and confirm production potential, which has been prolific in other parts of the Congo. On the assumption that funds are raised, this activity will occur during 2017.

The Tilapia field is 1.8 kilometres offshore of the Republic of the Congo, located in the Lower Republic of the Congo Basin. It is drilled from onshore, and has its production and storage facilities onshore. It is a 45-minute drive from Pointe Noire and 17 kilometres from the nearest refinery. Production can be trucked to the refinery throughout the year. AAOG to increase production both in the short term by investing in the current facility and in the medium term by undertaking new drilling programmes into deeper geological structures. The acquisition will occur in two stages. Initial completion will occur on Admission with 49% of PK being acquired. Secondary completion, when AAOG will acquire the remaining interest in PK, will occur thereafter subject only the approval of the relevant Congolese ministry.

The Tilapia field benefits from having extensive surface infrastructure, which is under utilised and would only require limited capex, such as an additional 5,000/bbl storage tank estimated at US$300,000 in order to meet AAOG’s forecast production requirements. Talipia is estimated to

Work programme

Post-acquisition, AAOG intends to conduct two workovers to increase production from the Pointe Indienne Formation, R2 sandstone and add new production from the R1 sandstone.

• The first workover comprises: re-perforation and acidising of the R1 and R2 reservoirs accessed by the TLP-102 well. The former did not flow on the previous test and the latter has not yet been tested.

– Additional production added target: 105bbl/d

• The second workover comprises: the installation of an already purchased Progressive Cavity Pump (PCP) over the R2 reservoir in the TLP-101ST well.

– Additional production added target: 80bbl/d

• Drilling new 2,800m multi reservoir well

As stated in the CPR, in the P50 scenario, these workovers could increase production by 185bbl/d. In the P10 case, production could reach 250bbl/d.

AAOG, in parallel, will drill two new deviated wells from onshore to the offshore targets: one to appraise the Mengo discovery and one to evaluate the deeper Djeno exploration prospect. The first well is expected to be funded by the IPO; the second is expected to be funded from future cash flow.

Adjacent exploration and production success

One of the key reasons why AAOG is excited about the prospectivity within the Tilapia licence is the exploration and production success in the surrounding acreage in the Djeno sands by multiple companies.

Dividend policy

The company has stated that once production reaches 5,000bbl/d and that oil prices are higher than US$30/bbl, it will distribute dividends of at least 75% of net profits after allowing for necessary capex and subject to the availability of distributable reserves.

Management incentives

Management share options (15%) granted at Initial Completion at placing price, which vest in three tranches:

– 1/3 on production of 1,000bbl/d
– 1/3 on production of 2,500bbl/d
– 1/3 on production of 5,000bbl/d (in each case measured over a consecutive 30-day period)

Subject to achieving the minimum production targets set out above, vesting is one-third on date of grant, one-third on first anniversary of grant and one-third of second anniversary of grant.

The executives have agreed to defer 75% of their accrued but unpaid consultancy fees of £120,000 each against achieving increases in production.
– 25% of consultancy fee to be paid on admission to AIM
– Remaining 75% deferred and paid in three tranches contingent on the company achieving sustained increases in aggregate production to 500, 625 and 750bbl/d respectively.
– Executives have also agreed that they will defer half of their remuneration if the oil price is less than US$35/bbl and/or if the company is otherwise cash-flow constrained.

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