#AAOG – Jump for joy

#AAOG – Jump for joy

Just like the last RNS detailed below, it seems to make sense to expand upon the recent Mengo target reached RNS.

http://icebergshares.blogspot.com/2018/12/aaog-sigh-of-relief.html

Just like the last RNS, this one has been woefully misunderstood by the market, in my opinion the real significance of this RNS won’t be understood until the wirelogging news has been undertaken.

I’ve always had the opinion that Mengo will be commercial successful for AAOG, with 4-6 wells it will provide for and value a £100m mcap company, with the ability to take advantage of other opportunities.

The R zones as described above were mixed, R2 Sandstone looks very promising for replicating the 101 drill.

A few weeks ago prior to the R zone hit, I emailed David to try and find out some information about the Chela sandstone layer, he didn’t bite. However for me the sandstone is vitally important, being so close to the natural African plate boundary it borders the estuary and shallow sea deposits but also allows access to the onshore geological river deposits, as it flowed into the shallow seas.

The location of 103, was perfectly positioned to take advantage of this and key was the sandstone layers.

The announcement contained the very interesting and detail lacking statement.

“Additionally, three new potential pay zones have been encountered between the reservoir R2 and the Mengo. These zones, formed by sandstones, showed a positive log response and hydrocarbon shows.”

“These results indicate a well-developed on-shore/offshore hydrocarbon system underlying Tilapia”

Taking the above comments we seem to have confirmation that AAOG are saying the same.  A bit of geological digging and we have a past geological era, with shallower seas and the vast Congo river flowing through, AAOG have just confirmed this with the discovery of the oil laden river deposits, in the form of sandstone. Onshore these river deposits are very difficult to find, almost like finding a small gem in the mud, they produce very light, highly moveable hydrocarbons, sometimes up to 7000bopd. I doubt that these sandstones have the net pay to achieve this, however it’s interesting that AAOG didn’t mention the size of the pay zones, nor how tightly packed they were.

Moving onto Mengo, first a few figures taken from today’s Finncap research note.

103 intersected 104m of gross Mengo with 50m of oil and gas shows in sandstone.

101 (the original hole we hoped to emulate) intersected 38m of gross Mengo and 10-15m of oil and gas shows in sandstone.

The above wasn’t obvious from the original RNS, but shows just how impressive this drill is. Remember an emulation of 101 was deemed sufficient to give us 500bopd. The much, much larger Mengo, should have better pressure and should be a reservoir 2-3 times the size expected.

The above isn’t the best bit though. Geologically speaking the massive size of Mengo pay and the sandstone deposits all point towards a fully working system, with a fault trap. Djeno, just like Mengo after the R zones has derisked some, it’s still maybe 40-50%, but considerably above 20%.

The well has already done enough to prove to me it will likely produce at 500-1000, and folks should remember this is a production hole, with tanks ready and waiting. This justifies a MCAP well above the current level.

As a holder with good average, I therefore have either a 100-200% gain based on what we know already or a 300+ gain if Djeno comes in. (I am a very happy camper).

I know the current SP doesn’t reflect this. We have the dead season between Christmas and NY, we had Sandabel, whose shares were quickly dumped and ended up with lots of short term traders, we have a low liquidity market and finally we have an RNS that hasn’t yet been really understood.

The volume today of over 10% of the entire company will likely have flushed out most of the traders. After New Year, with wirelogging, new estimates, pay zones etc coming in, the MCAP will readily respond and 15-20p on Djeno approach seems reasonable. Djeno will likely be hit around the 20^th of 

Jan by my calculations.

A jump following on from the sigh of relief is a welcome end to 2018.

#AAOG – Sigh of relief.

After the euphoria of the 7am RNS and the pre-market open, we have had time to let the news settle and to have a more serious think of how things stack up.

It’s not an overstatement to suggest that this has probably been “The Drill” of 2018 for AIM. It’s had everything from “Death Spirals”, to Drill problems, Fake accounts on Twitter, extensive shorting and a host of rumours concerning failure.

Despite all this the drill has continued and as todays RNS states, “our operational team who, under pressure to deliver results quickly, have worked tirelessly to repair and overhaul the SMP rig that has disappointed to date. In many cases they have stepped in to solve problems that should have been addressed by SMP's personnel”. 

The drill rig, very much like the drill, seems to have developed a life of its own. Its temperamental, SMP staff are inadequate to the needs and AAOG staff have needed to step up. 
Longer term this will be beneficial and the skills learnt will certainly make future drills far more efficient and cheaper, however short term delays have been a breeding den for the detrimental rumours.


For me, the above is vital to understand how important todays RNS is. The simple fact that the drill is working, it is progressing cannot be underestimated. It will put to bed, at least for a while, many of the rumours.The second importance for today’s RNS is a confirmation of the existing geological model. The salt cap is firmly in place and the oil doesn’t seem to have migrated out of the location. This will be 100% confirmed in the wirelogging, but removes a component of the Mengo COS calculation, raising this to around 80%. Connected with this are the current geological makeups of R1,2 and 3. These were included in the RNS and have largely been overlooked.“The R1 was intersected at 1273.3mMD and formed of claystone and siltstone. The R2 was intersected at 1283mMD and was formed of sandstone and the R3 was intersected at 1303mMD and was formed of claystone, dolomite and siltstone”


Claystone and siltstone are not fantastic oil reservoirs, they generally have low permeability and low porosity. Make no mistake there will be oil, but it won’t flow readily. R2 however is a different beast it looks to be a good layer of sandstone (much better permeability and porosity and likely to readily flow to surface naturally).
Finally we have money, with what we know about R2 we can estimate, even with all other targets failing, that this well will deliver  $2-3m a year, giving a 5-8m MCAP. This gives us a very nice minimum figure for the company, enabling us to really assess risk compared to reward. Like many, I’ve been in oil companies that have lost 60-80% on a drill failure. To have this level of lost removed is a great relief indeed.

So to recap, this RNS is a fantastic, enormous sigh of relief. Mengo is very likely now and would generate $5-10m a year, giving an MCAP of 30-40m. Christmas will be far happier.
Future RNS’s to include the Mengo target probably Monday just before Christmas and wirelogging results just before NY now.

For Djeno and Vanji. I am very optimistic, all to come in January and I have no doubt that money will be raised upon successful Djeno, but an MCAP of 200m+ will be easy to fund into.
Enjoy the relaxing Christmas, keep an eye open for AAOG Mengo news and dream about the New year.