SacOil changes track with oilfield acquisition
SACOIL ACQUIRED THE OILFIELD FOR $14M ($4M CASH, $10M IN SACOIL SHARES) FROM A TORONTO-BASED EXPLORATION COMPANY THAT HAD FALLEN ON HARD TIMES.
How has the company that thrilled and then pained investors evolved since the heady days when it was the top-performing stock on the JSE? The SacOil share price is now at 43c, a long way from the R2.30 that it was at its peak in 2011. But over the l ast 12 months the share has been cheered, having risen by 55%. This now ref lects a market value of R1.4bn for a company with no revenues to speak of as yet.
The company reported its results for the six months ending August on November 4. The standout feature of the results was the transaction that saw SacOil acquire the Lagia oilf ield in Egypt. The new CEO has only been in the role for four months after joining the company from PetroSA. But Thabo Kgogo is keen for SacOil to make the transition from being a development company to a production company as soon as possible. “Exploration is a very expensive business. So we wanted to acquire development assets that we can put into production quickly and which will generate cash f lows that can sustain our longer-term plans,” says Kgogo.
The r ecent acquisit i on of t he Lagia oilf ield will be the f irst step in achieving this. “Lagia is an onshore development asset, which means there are already proven reserves of oil. The storage infrastructure is in place, and with some investment we should begin production in the next three months,” Kgogo adds.
The deal was attractively priced. SacOil acquired the oilfield for $14m ($ 4m cash, $10m in SacOil shares) f rom a Toronto-based exploration company that had fallen on hard times. “We bought the asset at what equates to roughly $2/ barrel. Similar assets in other countries would go for $8-$10 per barrel. It took us four months to close the transaction and we expect to spend around R50m to take the assets into production.”
That will make a R50m dent in the company’s cash pile, which currently sits at R300m. The remaining R250m will be available to fund exploration drilling attached to the company’s two (one onshore, one offshore) assets in Nigeria. Kgogo believes each project will require $ 40m, which roughly translates to R110m per project for each of SacOil’s two 20% stakes.
Over the longer term, the company would like to get involved in more unconventional plays that are appearing all over the continent. These include fracking as well as offshore gas plays. The company has also signed a Memorandum of Understanding with the PIC and a Mozambican company called Igepe to develop a gas pipeline from the Rovuma basin in the northern stretches of the country to South Africa via Maputo. Prefeasibility studies will begin in January. Kgogo says that there is a lot more on the go. Investors have been alerted.