#AAOG Recovery?

#AAOG Recovery?

I wasn’t going to do another blog on AAOG for awhile, but David and Co. seem intent on delivering 

continuous major news.

The placing…60m new shares at 10p taking the total shares in issue to 237m shares.

The affect…..the share price currently down to 9.5p as I write this.

https://icebergshares.blogspot.com/2019/01/aaog-rumour-rancour-and-raisings.html

In the above blog I discussed at length, the why of the placing. Now we know that the amount of shares on offer were 60m not 40m, things are pretty much the same.

In addition to the above, I will say that David, didn’t have debt capacity, we the shareholders and myself personally said we didn’t want Sandabel, I also said I didn’t want Jub Cap involved. It would have been nice for inst. Participants. There might be some we don’t know, nor do we know until the TR’s have been released whether any of the current major share holders partook.

If Djeno is successful we won’t need to drill Vanji or flow test R2, the new zones or Mengo. Everything will be far quicker and easier. Remember Djeno is an oil top layed gas zone. The higher chance of an oil top comes from a dip/fault structure. Prior drill the COS was 20%, largely as it was unknown whether the dip/fault existed. Other risks concerned the existence of Djeno in that region and operational risks around the drill. Given the findings so far and the dip/fault the COS is considerable above 20%, is this official? Of course not as that would require a new CPR.

Given the pre placing position Mengo, new zones etc gave imho a minimum SP of 20p. Post placing this will have reduced to 14p. Upside on this will be conditional on new factors and flow rates. A successful Djeno, with oil flow, I had as roughly 40-50p so reduced to 30-40p post placing as a minimum.

The current SP is far from this. I have a little prematurely picked up more shares at 10.25p post placing (I should have waited). However the error led me to examine more closely the effects of the 60m placing shares.

If we assume that only 5m of those shares are sticky (ie going to long term holders), then that’s still 55m shares that need to be cycled. In this kind of situation I would be tempted to apply a 4-1 rule. For every placing share, volume needs to be 4 times higher to discount its effect on the placing price.

So for the share to move convincing above 10p, roughly 200m shares need to reflect in volume. An assumption that the placing was first known and forward selling started last wed (was it only a week ago), gives us total volume so far by the end of today of around 130m shares. We still need a couple of days then to approach the 150-170m that will enable the first small climbs out of the placing price. 

Then a further 2-3 days before the effect of the placing on the SP will no longer be felt at 10p.

It will require a few recycles to leave the placing completely behind us, as a large percentage of those buying at 9-10p will be looking to sell for a 10-20% profit within a week and so on.

Obviously any news released by the company might well speed up this process considerably, as will, any of the existing major shareholders participating and the 4-1 rule is only a guideline.

It is good that the company is fully funded now to production of 103, production/revenue is the best way of increasing the SP long term (remember that the company will get 100% of the revenue until costs are recouped).

It is important that investors have a wide eye, honest approach though to the investment. If you don’t want to hold for a week or so then sell, if you want to hold until just prior Djeno, then I am sure it will be higher than now (hopefully approaching 14p). If you want to hold until post Djeno then the current fall is a pain but at least you know the company can produce from its oil without any more funds, hassle or pain.