SacOil changes track with oil­field ac­qui­si­tion


Finweek English Edition - - SMALL CAP - BY WAR­REN DICK ed­i­to­rial@fin­

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.

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