Africa Oil Corp【AOI】株式ニュース

From Seeking Alpha: Dividends and Dividend Yields Relative to Share Structure, Pre- and Post-Prime Oil & Gas Amalgamation

Fig. 2. Dividends and dividend yields relative to share structure, pre- and post-Prime Oil & Gas amalgamation (Laurentian Research, based on Africa Oil financial reports)

Dividend safety

Africa Oil also announced two additional uplifting news last week, concerning the Nigerian oilfields:

The Nigerian Upstream Petroleum Regulatory Commission has given timely regulatory clearance for the combination of two partners in Prime Oil & Gas Coöperatief U.A., i.e., Africa Oil and BTG Pactual Holding S.à r.l. NUPRC has confirmed that the amalgamation does not amount to a change of control in the beneficial ownership of Prime's local subsidiaries, and ministerial consent is not required for the transaction; therefore, the transaction may proceed as proposed. The NUPRC regulatory approval

Africa Oil: A Strong Buy With Positive News Flows And De-Risked 11.6% Dividend Yield
Nov. 06, 2024 4:41 AM ETAfrica Oil Corp. (AOI:CA) Stock, AOIFF StockCVX, GLPEF, GLPEY, TTE, TTFNF7 Comments

Laurentian Research
Investing Group Leader
(13min)
Summary

The completion of the farm-down of Impact's interest in Namibian blocks 2912/2913B cleared the path for Africa Oil to complete its consolidation of Prime Oil & Gas in Nigeria.
Africa Oil: A Strong Buy With Positive News Flows And De-Risked 11.6% Dividend Yield
Nov. 06, 2024 4:41 AM ETAfrica Oil Corp. (AOI:CA) Stock, AOIFF StockCVX, GLPEF, GLPEY, TTE, TTFNF7 Comments

Laurentian Research
Investing Group Leader
(13min)
Summary

The completion of the farm-down of Impact's interest in Namibian blocks 2912/2913B cleared the path for Africa Oil to complete its consolidation of Prime Oil & Gas in Nigeria.

Owning 100% of Prime will double production, enabling 11.63%-yielding dividends. Nigerian regulatory approval of the Prime consolidation and the 20-year PML-52 extension de-risk these dividends for the foreseeable future.
Here, I argue AOIFF's recent pullback has made the stock deeply undervalued. Near-term catalysts and tripling of base dividends may drive the share price significantly higher.
I am Laurentian Research, I have a PhD in geoscience and decades of investment experience. I run the investing group The Natural Resources Hub, where I aim to uncover hidden gems in the mining and energy sectors.

FPSO Oil Rig

Dividends to be tripled

Those following E&P activities in the Orange Basin off southwestern Africa know that I previously recommended Africa Oil Corp. (OTCPK:AOIFF) as the preferred way to gain exposure to this emerging oil province. Judging by the progress of E&P activities since then, the investment thesis has proven correct, though it may take a bit longer for shareholders to reap the rewards.

To that end, Africa Oil said last week that its investee company Impact Oil & Gas Limited has completed the farm-down of its interests in Blocks 2912 and 2913B offshore Namibia to TotalEnergies (TTE), with US$99 million in cash payments received as reimbursement for the net costs incurred on the blocks prior to January 1, 2024. Impact has retained a 9.5% interest in each of the blocks, which in accordance with industry farm-down customs are carried until the first sales proceeds from the Venus field, as shown in Figure 1.

The completion of the farm-down is expected to trigger a chain reaction of events:

It "satisfies a condition precedent to the amalgamation to effect the consolidation of all of Prime Oil & Gas Coöperatief U.A. in Africa Oil," which holds interests in two oil complexes in deepwater Nigeria that collectively produce approximately 36,000 boe/d.
The completion of the Prime consolidation will officially double the reserves and production of Africa Oil, leading to a 2X increase in corporate FCF.
The doubling of corporate FCF will enable Africa Oil to significantly expand its shareholder return program. Indeed, the company is committed to paying out US$100 million (or US$0.15 per share) in base dividends after the Prime amalgamation, a 3X increase over the current dividends (US$23 million or US$0.05 per share) that existing shareholders have been receiving, and distributing 50% of the excess FCF in the form of supplementary dividends and/or share buybacks.

At US$0.15 per share, the base dividends will have a forward yield of 11.63%. Africa Oil now expects to close the Prime amalgamation by the end of the first quarter of 2025, implying that the 11.63%-yielding base dividends may start to be paid out as soon as the second quarter of 2025, as illustrated in Figure 2.

Dividends and Dividend Yields Relative to Share Structure, Pre- and Post-Prime Oil & Gas Amalgamation

Fig. 2. Dividends and dividend yields relative to share structure, pre- and post-Prime Oil & Gas amalgamation (Laurentian Research, based on Africa Oil financial reports)

Dividend safety

Africa Oil also announced two additional uplifting news last week, concerning the Nigerian oilfields:

The Nigerian Upstream Petroleum Regulatory Commission has given timely regulatory clearance for the combination of two partners in Prime Oil & Gas Coöperatief U.A., i.e., Africa Oil and BTG Pactual Holding S.à r.l. NUPRC has confirmed that the amalgamation does not amount to a change of control in the beneficial ownership of Prime's local subsidiaries, and ministerial consent is not required for the transaction; therefore, the transaction may proceed as proposed. The NUPRC regulatory approval was originally expected in mid-2025 or later.
NUPRC has also renewed Petroleum Mining Lease 52 (PML 52), containing the Chevron (CVX)-operated Agbami field, for 20 years effective from November 24, 2024. This follows last year's renewal of the licenses for the TotalEnergies-operated Akpo, Egina, and Preowei fields. Production at Agbami averaged 98,000 bo/d in 2023 from 30 producers, 5 gas injectors, and 10 water injectors, or 7,840 bo/d net to the 8% working interest of Prime Oil & Gas Coöperatief U.A.

The 20-year renewal of these leases secures the long-term production outlook from these high-quality assets. Infill drilling programs at Egina, Akpo, and Agbami and the development of the Preowei field will further derisk the cash flow outlook of Africa Oil. The Africa Oil board of directors considers the above-described base dividends to be sustainable in a range of through-cycle oil price scenarios, as shown in Figure 3.

Estimated Operating Cash Flow, Free Cash Flow, and Base Dividends (in US$100 million) for 2024-2033. Free cash flow is derived from operating cash flow, based on a 2-year forward curve and US$70 long-term oil prices (inflated at 2% per year), and nominal CapEx

Fig. 3. Estimated operating cash flow, free cash flow, and base dividends (in US$100 million) for 2024-2033. Free cash flow is derived from operating cash flow, based on a 2-year forward curve and US$70 long-term oil prices (inflated at 2% per year), and nominal CapEx (modified by Laurentian Research based on Africa Oil presentations and financial reports)

In summary, the 11.63%-yielding dividends are believed to be safe because:

The Nigerian deepwater oilfields have been granted a 20-year lease extension, are of extremely low costs (US$15/boe in OpEx), and are being further developed by leading E&P operators (TotalEnergies and Chevron) for production stability;
With the farm-down in Blocks 2912/2913B and 3B/4B in the Orange Basin and Prime amalgamation in Nigeria, Africa Oil will become leaner and incur lower G&A;
Being carried until first oil production in Namibia, Africa Oil no longer has any significant capital commitment, enabling it to return FCF to shareholders.

Why the recent selloff then?

The stock of Africa Oil has been in a serious pullback since September 2023, as shown in Figure 4. First, it was sell the news of a successful drill-stem test in the discovery well Venus-1X and the drilling of the Venus-1A appraisal well. Next, Africa Oil CEO Roger Tucker negotiated the farm-down of the working interest of investee company Impact in blocks 2912/2913B as well as Africa Oil's stake in South Africa block 3B/4B, which many shareholders hated to see, perhaps due to loss aversion. Then, Africa Oil agreed with BTG Pactual Holding S.à r.l. to merge their respective 50% stakes in Prime Oil & Gas Coöperatief U.A., which some shareholders thought was done at an inopportune time when Africa Oil's share price had undergone a recent selloff. Amidst the uncertainty resulting from the series of transactions, the pause of share buybacks in the aftermath of the announcement of the Prime consolidation certainly did not help.Considering that Africa Oil trades at US$8.2 per barrel of low-cost, high-margin, producing 2P reserves, or 0.49X its NAV (pro forma the Prime consolidation and excluding exploration upside in blocks 2912, 2913B, 3B/4B, and Equatorial Guinea) as shown in Figure 5, I believe Africa Oil stock has been grossly oversold and is now deeply undervalued—especially as it currently trades at the same level as when news of the giant Venus discovery first broke (Figure 4).

NAV build-out of Africa Oil, shown with its market cap as of November 1, 2024. The NAV of the Nigerian producing assets is estimated from Africa Oil’s NI 51-101 statement of reserves for year-end 2023, with the gross asset value at 13% discount rate being US$1,065 million, adjusted for 50% of Prime’s net debt and Nigerian dividend withholding tax. The value of the Namibian assets is calculated from Africa Oil’s offer to Impact’s minority shareholders

Fig. 5. NAV build-out of Africa Oil, shown with its market cap as of November 1, 2024. The NAV of the Nigerian producing assets is estimated from Africa Oil’s NI 51-101 statement of reserves for year-end 2023, with the gross asset value at 13% discount rate being US$1,065 million, adjusted for 50% of Prime’s net debt and Nigerian dividend withholding tax. The value of the Namibian assets is calculated from Africa Oil’s offer to Impact’s minority shareholders (modified by Laurentian Research based on Africa Oil presentation and Seeking Alpha)

As Venus is being considered for accelerated development, it is prudent for Tucker to farm down Impact's (and Africa Oil's) exposure in blocks 2912/2913B to lower the financing risk. The forgone upside (10.5% farmed out), in my opinion, cannot compare with the benefit of eliminating all of the risks associated with having to come up with potentially billions of dollars of capital to develop Venus and conduct further exploration; it spares shareholders from severe equity dilution that would inevitably result from project participation. Farm-outs are a standard oil industry practice for project participants—especially small-cap companies like Africa Oil—to lower risks, and energy equity investors must learn to accept this. We cannot eat our cake and have it too. As for the temporary halt of share Fig. 5. NAV build-out of Africa Oil, shown with its market cap as of November 1, 2024. The NAV of the Nigerian producing assets is estimated from Africa Oil’s NI 51-101 statement of reserves for year-end 2023, with the gross asset value at 13% discount rate being US$1,065 million, adjusted for 50% of Prime’s net debt and Nigerian dividend withholding tax. The value of the Namibian assets is calculated from Africa Oil’s offer to Impact’s minority shareholders (modified by Laurentian Research based on Africa Oil presentation and Seeking Alpha)

As Venus is being considered for accelerated development, it is prudent for Tucker to farm down Impact's (and Africa Oil's) exposure in blocks 2912/2913B to lower the financing risk. The forgone upside (10.5% farmed out), in my opinion, cannot compare with the benefit of eliminating all of the risks associated with having to come up with potentially billions of dollars of capital to develop Venus and conduct further exploration; it spares shareholders from severe equity dilution that would inevitably result from project participation. Farm-outs are a standard oil industry practice for project participants—especially small-cap companies like Africa Oil—to lower risks, and energy equity investors must learn to accept this. We cannot eat our cake and have it too. As for the temporary halt of share repurchases, it was a smart move on the part of Africa Oil management because continued share buybacks using Africa Oil's cash before the completion of the Prime consolidation mostly benefit BTG. I believe those investors who have sold will likely come around once the 11.63%-yielding dividends begin to be paid out. At least the high yield will cause much pain to the short sellers. That takes us to what near-term catalysts there are for Africa Oil.
Near-term catalysts

Besides the threefold increase of dividends likely starting in the 2Q2025, the following catalysts may drive the Africa Oil stock toward its intrinsic value.

Near-term catalysts

Besides the threefold increase of dividends likely starting in the 2Q2025, the following catalysts may drive the Africa Oil stock toward its intrinsic value.

Firstly, Africa Oil currently has an indirect interest of approximately 3.078% in Venus-containing blocks 2912/2913B through its 32.4% shareholding in Impact. Africa Oil is poised to increase its shareholding in Impact to approximately 39.5% via a call and put option agreement before February 27, 2025, which represents an effective economic interest of approximately 3.8% in the blocks.

Secondly, by drilling four wells (Venus-1X, Venus-1A, Venus-2A, and Mangetti-1X) in Block 2913B, the operator TotalEnergies has shown that Venus is a world-class field, possibly containing over 5 billion boe of in-place resources or 2 billion boe of recoverable light oil and associated gas.
Venus is projected to come on stream by 2029 or 2030, initially producing 150,000-160,000 boe/d with one FPSO at a low cost of US$20/boe. Africa Oil is expected to be entitled to 5,890 boe/d of that initial production before carry repayment to TotalEnergies from Impact’s after-tax cash flow. The final investment decision (or FID) for Venus development is expected to be reached by the end of 2025. Although indications are that the Venus FID will be positive, investors should be aware of the risk that Venus development may be delayed.

Thirdly, further exploration in blocks 2912/2913B on the Namibia side and 3B/4B on the South Africa side of the Orange Basin may lead to additional discoveries, although exploration drilling always carries extremely high risks.

The Mangetti discovery may have an additional 1.5 billion boe of in-place oil. On October 20, 2024, TotalEnergies spudded exploration well Tamboti-1X in the far northern part of Block 2913B using the Odfjell DeepSea Mira semisubmersible rig, targeting approximately 2 billion boe of in-place resources in one objective similar to the reservoir penetrated in the nearby Mopane discovery of Galp Energia (OTCPK:GLPEY) and another objective already encountered in the Mangetti-1X well.

Two additional 3D seismic surveys were completed in 2024. The seismic data is currently being processed and interpreted, which is expected to lead to the identification of additional drilling targets in the far northern and southern parts of blocks 2912/2913B.

In South Africa's Block 3B/4B (Figure 6), where Africa Oil has a carried 18% interest and which has multiple exploration prospects on trend with the Venus and Graff discoveries, with an estimated 4 billion boe in unrisked gross P50 prospective resources, TotalEnergies is poised to drill one firm and one contingent well likely in Q1 to Q2 2025.
Investor takeaways

Last week's completion of the farm-down of Impact’s interest in Namibian blocks 2912/2913B paved the way for Africa Oil to finalize its consolidation of Prime Oil & Gas Coöperatief U.A. Owning 100% of Prime will double its production and facilitate the initiation of 11.63%-yielding dividends. The approval of the Prime consolidation and the 20-year extension of PML 52 by the Nigerian regulator substantially de-risk these dividends for the foreseeable future.

The recent pullback in Africa Oil’s share price has left the stock deeply undervalued relative to its NAV, creating an opportunity with approximately 100% upside. A series of near-term operational catalysts, combined with an expected tripling of base dividends likely starting in Q2 2025, is anticipated to drive the share price substantially higher despite the high risks associated with deepwater exploration drilling.

Stolen from Seeking Alpha:

Africa Oil: Simplifying The Balance Sheet While Reducing Cash Needs
Sep. 13, 2024 7:22 PM ETAfrica Oil Corp. (AOI:CA) Stock, AOIFF
Long Player
Investing Group Leader
(9min)
Summary

Africa Oil should grow tremendously over the coming 10 years.

Africa Oil consolidates Prime Oil & Gas ownership.

The second quarter results show an interruption in production due to the drilling campaign.

Africa Oil is debt-free, but Prime's debt is being paid down.

Africa Oil has a number of simplification proposals underway.

The last article on Africa Oil Corp. (OTCPK:AOIFF) discussed the consolidation of prime ownership under the company umbrella in exchange for company stock. Since that time, management has continued to streamline its investments while also reducing future cash needs. The result of this is carried interests in key areas while the company's financials will be a bit easier to understand in the future. There's also a focus on areas that will be growth areas while maybe some more speculative (or uncertain) projects go by the wayside as this process continues. Africa Oil was, for a long time, a story company that's one of the rare companies transitioning to an actual operating entity with a very bright future and some impressive partners.

What made the transition possible was the association at the time with the Lundin Energy Group of companies. That sizable organization is well respected for its record with investors. But that association has now ended. The proposed combination not only simplifies the whole structure, but also places another major (well-respected) shareholder behind the company to help this company continue to grow. It's hard to understate the necessity of that kind of relationship when it comes to growing a small company in the offshore business.
Second Quarter

Another announcement made previously was a drilling campaign to add to production for the company's major producing asset off the coast of Nigeria. That was going to interrupt ongoing production to a certain extent and the current results show that. However, the breakeven results were overshadowed by a distribution from Prime and a reduction in the net debt.

A combination of a different tax structure and the key transactions shown below have affected both comparisons and reported results. The details are shown in the quarterly report. A combination of issues may continue to affect quarterly results until all of this completed, which makes quarterly comparisons a real challenge.

Africa Oil itself is debt-free. However, Prime does have debt that's being paid down and therefore shows on the consolidated balance sheet of Africa Oil.

Probably the most important consideration is the structure and health of the company after all the anticipated transactions are complete. The same goes for the drilling campaign.
Key Transactions

This is a summary of what was announced during the fiscal quarter. After the quarter ended, the company announced an offer to minority shareholders of the subsidiary Impact to buy out their shares.
All of this activity sort of makes the second quarter earnings announcement largely irrelevant. Once the drilling campaign is completed, production interruptions are no longer a concern and the steps shown above are likewise complete, this will be a very different company going forward.

Management also announced an agreement to trade its nearly 15% interest in Eco (Atlantic) Oil & Gas Ltd. (OTCPK:ECAOF) for a 1% interest that Eco held in 3B/4B. This was part of the earnings announcement and further rationalizes the company holdings. As a result, this company now only has interests in the African Continent.

Throughout all of this Africa Oil itself will remain debt-free. The only issue would be the drilling campaign and how production issues as a result of that campaign affect cash flow and debt repayments in the future.

The Business Going Forward

The transaction with Eco Atlantic will, in effect, end the business relationship with that company.

Any relatively small player in the offshore business will have down years and up years rather than a smooth "straight-line" up.

Africa Oil Pro-Forma Future Guidance:In this case, the latest drilling campaign will provide an immediate production (and cash flow) boost until the next campaign. Later, another project will come online and provide another source of cash flow. That diversification will provide the start of the company's effort to smooth earnings.

It's harder to tell the effects on the stock price because the industry has been in the doghouse for some time. As a result, it may well be worth the wait for the better years ahead because the industry could return to more normal historical valuations that would provide some upside potential even if production declines between drilling campaigns. There's also some potential for another accretive acquisition using some cash flow.

The key part of the slide is the low capex required to get to that second production source shown on the lower right-hand corner of the slide. (Couldn't copy and paste it)

Summary Of The Future Business

Africa Oil is a Canadian company that reports in United States dollars.

One of the things that gives this company credibility over many of its size is the partners shown above. Both Chevron Corporation (CVX) and TotalEnergies SE (TTE) are well-regarded operators that very much elevate this offshore operator considerably above many offshore operators of the same size.

This could well make the search for a "name" partner for the Equatorial Guinea project much easier than it otherwise would be.

The end of the strategy of minimizing cash out in exchange for some working interest in a project is finally within the view of the future.

The coming online of projects in South Africa and Namibia is bringing income located in two of the most advanced countries in Africa. They're also two of the most stable countries on the continent. This represents a higher valuation location than the location of the source of the current cash flow.

It is going to take some time for that future to arrive and begin to diversify cash flow. Therefore, this stock may be appreciated when the latest drilling campaign is completed. But there's a lot more appreciation potential that's a few years away.

Valuation of the stock will depend upon market conditions at the time another project begins to contribute to total company production and profits. Overall, though, this is a small player with decent-sized interests in some relatively large projects.

Summary

Between the drilling campaign that is affecting the cash flow from the one cash source, and all the announced simplification strategies, the company's financial statements are very likely to undergo a major (positive) transition that will end with the consolidation of Prime within the company. Overall, every step appears to be a major plus for the company.

Africa Oil, as a smaller offshore operator, naturally has an elevated risk to the point it's considered speculative at this point. However, for those who can handle the risk of an issue like this, it's probably a strong buy idea. This company is likely to be a materially different and far more valuable company by the end of a decade (and likely before that). This is that rare company that's making the transition from a "story company" to an operating model.

Africa Oil itself is debt-free. However, Prime does have debt that it's paying down and is consolidated on the balance sheet. That debt is at conservative levels. The low requirements of cash needed to bring the next projects online (because a carry has been negotiated) means that the company will continue to have a strong balance sheet.

Risks

Any upstream company is exposed to the volatility and low visibility of future oil prices. A sustained and severe downturn in commodity prices could change the outlook for this company and some of its promising projects.

The drilling campaign underway has so far been successful. But success for the rest of the campaign is not assured.

Similarly, all the simplification steps have necessary approvals and administrative steps that need to be successful. A review of all of this could find some unforeseen challenges to get all the anticipated steps done. It's unlikely. But it's a risk.

A loss of key personnel could materially set back the company's future prospects.

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