#AAOG Answers, Answers and Money.

I’ve not been too involved with AAOG recently. About two weeks ago I created a list of questions I had and none of them were being answered. I was rather annoyed by this as well as how much was left out or unclear in the RNS’s released.

However thanks to the last few RNS’s and the wonders of the internet and David’s presentations, many of these have been answered. I am finally able to comment without having to say that everything is uncertain.

So what do we know.

Geology:

R2, is considerably better than they expected. Importantly the pressure was better (being the same as 101 when that was first drilled) and R2 is a compartmentalised system. The expectations from both SNPC and AAOG geologists are that it will flow at the 1200bopd for 12-18 months which is the same as 101 flowed.

Mengo, is not quite as good as we might have liked. Although larger, SNPC have estimated 300-500bopd, rather than 700-800bopd. It will be fracked (simulated) once using latest technology. This won’t be done using the rig, but will be done using Schlumberger’s own equipment. The equipment will be on site end of March beginning of April due to a delay their side. Fishbone technology won’t be used to keep things plain and simple and to follow guidance from SNPC who have multiple successes now drilling into and producing from the Mengo.

Djeno, the drill only reached into the upper Dolomite section of Djeno. In this section a working oil field was observed. Trap, seal etc were all in place. Down hole data indicated a working oil sands system below the Dolomite, this was backed up by SNPC and their knowledge of Djeno in surrounding fields (being a part owner in surrounding field SNPC geologists are experts with full field data). Given this the depth of the Djeno can confidently be assessed as 100m>

CPR:

David has confirmed several times that the CPR will be released in the beginning of March. A figure of 300m barrels for the R1, R2, R3 New zone 1,2,3 and Mengo is expected.

David has also heavily suggested that the Djeno field is similar if not the same as nearby license areas, which contain in-excess of 1 billion barrels of oil. This will obviously only go into a CPR when 104 is drilled.

Funding:

Is has been confirmed multiple times that funding is not going to take place unless it’s for 104 and or a new oil field. Any new oil field will be a payment of shares imo and David would be foolish to do this until the share price is much higher. It has been confirmed that 104 will not be planned until production is underway. Given all this funding will NOT happen until May at the earliest. A loan against production would be first way of doing this anyway.

104:

A possible rig has been identified (from the states) and a late summer timeframe has been floated. This will target the Djeno sands for production and Vanji for exploration. Production target will be 5000bopd.

Product:

David has confirmed that oil samples have been taken and the API is 39-41, light crude. Price has been confirmed as Brent, with an $18 cost per barrel.

David has confirmed that they have already spoken to the major offshore Djeno terminal about Djeno production later in the year, they have confirmed that Djeno Heavier oil is required and they would like to take whatever AAOG can produce.

Revenue:

SNPC have paid $663,000 to AAOG, after electing to pay rather than give away ownership. This is good news. A short repayment plan had been entered into.

We know that the expected production is 1500 bopd we know the price and the profit.

1500*(brent-cost) * 30  = cashflow profit pcm

1500*(67-18)*30 = $2,205,000m pcm

Given roughly 55% of this is AAOG, we get a figure of roughly $1.2m.

This is perfectly in line with David’s insistence that the company will make pro rata, $1m a month cashflow.

To add to this we have an agreement for SNPC owings to be paid out of revenue, even if we have no extra money from them as per the repayment plan that gives AAOG $2.2m a month, possible $2.7m a month if SNPC make a $500k payment a month as per the repayment plan.

So where does that leave us?

February License renewal to 2040 by SNPC, now to happen as financial terms have been agreed.

March 300m CPR

April Flow test and production start.

May Money flowing in.

April – July $9-10m flowing in, money partially used to pay for topside enhancements for Djeno production.

August 104 Drill?

By end of 2019 – Djeno 5000bopd to add to 1500bopd, $13m a month pro rata to AAOG $7m giving $84m a year profit…MCAP $500m plus as the Djeno field and further holes will be in the works.

Obviously one step at a time, but now we know the answers to many questions, investors can at last start to put real projections together.

Frustrating that David has not put all this into RNS’s so it’s easy and clear to understand but then the SP wouldn’t be where it is, if he did.

My own personal opinion is that David has grown very fed up with the retail market, with its twisting and short-termism. You could argue, that this was due to his own actions, as the shares that have entered the market have largely fallen into slippy hands. As many as 20-25% of shares are slopping around, immediately stopping any sustained rise. To counter this David has been presenting to HNW investors. We’ve seen this bearing fruit with a holdings RNS. As more and more of the slopping around shares enter into sticky hands the SP will be become more and more variable to the upside.

The strategy of doing this prior the release of share price enhancing news (CPR, FLOW etc) is good and will maximise share price increase.

The share price will respond, when is impossible to say, the intelligence of investor on AIM seems to be at an all time low, preferring to use it as a gambling machine however quality and revenue will focus the mind of investors as the share price moves up.