Morning folks. An interesting week on AAOG, I thought a none
ramp, hopefully realistic view was needed. Deliberately released at the weekend
when the markets are closed and deliberately released before the wire logging
news.
Current Price 16.55p
The above are the precursor blogs I’ve written and the SP
when I wrote them.
I’ve been quite open that I think that AAOG has been, shall
we say politely, a tool of the ramp and sell brigade. Those fine upstanding
individuals who buy, ramp the hell for a few hours maybe even a day or so and
then sell, rinse and repeat. It’s also been a target of the false news of
placings, drill bits broken etc to try and buy back in cheaply. We have also
the perpetual moaners who lost of a lot of money in 2018 and seem convinced
that because they’ve invested in crap, everything on AIM is crap.
Because of all this it’s very important to get your research
right with AAOG, say focused, not let others try and dictate things and stick
to your strategy.
Strategy and being honest with yourself is important. Mine
is simply to wait until Djeno results, wait for true value on this and re-assess.
I might hold an extra few months to production if that’s needed I am not sure
yet.
Whatever your strategy, stick to it.
De-risking, (I am writing this will a real sigh…and shake of
the head). If you invest in an oil company for a drill, the drill hits oil but
you sell out prior to how much oil, to de-risk and keep it in cash. Then that
is de-risking. If you sell out to then invest in another oil company that is
drilling, that’s not de-risking, that’s just transferring one risk to another,
probably higher, risk.
It’s a mantra of many folk and pundits on AIM, profit is
profit, de-risk, always take some capital off etc. etc. However unless your
keeping it in cash, something many people seem to think is almost alien, this
is all meaningless. Greed, constantly looking for the next big things will
certainly whittle you away to nothing.
Back to AAOG, fundraising. This company has always been 100%
open with regards to fundraising and 100% honest. As I am sure folks know, they
had the Sandabel facility, which we were assured would be a long term investor.
They were not and as soon as the company knew, they cancelled the facility.
They have said that money will be needed to finish the current drill (probably
for flow testing etc.) They have consistently denied the rumours that’s it
happened, we’ve had this for weeks and they have been proven correct. A
fundraise is by no means certain, being owed 10m is a nice position to be in.
Having offers of debt (probably collateralised against assets or future
production) is a possibility. Having interested long-term investors approach
the company as strategic partners to inject is a nice position. If despite all
this a further £1m is needed to finish the well to production then at say 20p
that would be a small 5 million shares. I say small because the company has
traded 47m shares in the last 2 days. We’ve seen sells of over 2m appear
without any effect on the share price. On Twitter, I’ve seen mention of
hundreds of millions of shares coming to market. This is wrong, not just wrong,
but the company could not legally do this. It only has the authority from the
shareholders to issue a small 5m worth of shares. It has the authority to issue
less shares then yesterday’s volume at 20p. For me fundraising is pretty much a
none issue.
Now that’s all the faff dealt with on to Wirelogging.
AAOG is not the first company to drill this area, into these
targets. Its been drilled for the last 50 years so we have a pretty good idea.
In my understanding blog I talked about the interconnectivity and how this
should greatly help our targets. If we just examine some of the closest
targets, then a few drills were undertaken nearby into the Mengo, some of these
intersected 50m net pay of oil. Back in 2012 they tested at around 400-800bopd
after simulation. Since this time simulation methods have increased. We’ve had
the introduction of the fishbone technology 2013-2014 amongst others and multiple
techniques to prevent the hole from silting up. With this if Wire logging
confirms net pay (none water wet) then a min of 500bopd can be expected,
however with this being a gravity fed area and newer tech 1000-1200 bopd is
pretty likely. We know that hole 101 which wasn’t as good as 103 seems to be,
had 200 bopd for the first couple of years average from R2. We have been given
the nod by David that 2 of the 3 new sandstone zones are oil wet zones. I have
a feeling that they might be high pressure oil pay zones and if so then I am
sure the RNS will highlight this, but a low case scenario would be R2 equiv of
200bopd per a new zone. NZ1 and NZ2.
So given the expected wire logging I think I can safely say
that we have R2 200bopd, NZ1 200bopd, NZ2 200bopd and Mengo 800bopd. Giving
1400bopd in total as a very conservative value imho. The hole is a production
hole, with well site capacity to handle 2000bopd.
I am sure under the David Lenigas approach to flow testing
we could see figures of 3000-4000bopd touted, but the above is long-term
production value. The value of the above is $400k per week, easily $15m a year
given 2-3 months a year downtime. More than enough to sustain a 20p share price
and probably enough to support 30-40p.
Djeno with its 4000+bopd potential, as per my strategy is my
real minimum hold. But I really can’t see much risk, accepting for operational
mishaps at the current share price.
So the wire logging is the next step, it will likely not be
understood by the market look out for mention of future increases in production
capacity at the well head for a hint that production will be above 2000bopd,
look out for higher than expect porosity figures for Mengo and the new sandstone
layers and for higher than expected pressure expectations.
Mostly though, have your own strategy, be honest and don’t
believe everything you hear.
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