#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.