Well I’ve been on some holidays for the month of April.
During that time most of my shares have been pretty stable.
However my first focus has been on AAOG.
As per my past Blogs, I’ve been a massive fan of Djeno. In
my opinion AAOG’s 103 drill was the most misunderstood on AIM in the last few
years. The success of finding a column of oil in the Djeno beneath the cap
should have re-rated AAOG. The failures of the rig to drill further were
disappointing, however it shouldn’t take anything away from what was a massive
success. Many share pundits became openly sceptical that anything except a few
oil shows had been found, along with a difficult to produce Mengo and small
section of R2 sands.
Back in February, pundits also claimed the company had no
cash and needed to raise more money urgently. Wrong!
Open on record predictions from AAOG of 1500bopd from the
Mengo/R2 have been made to counter this, as well as firm denials of any
fundraising plans.
Of the $8-9m owed to AAOG from SNPC, a payment plan has been
entered into, with the 3rd payment due to be made in the next 10
days, bringing over £1m into the bank account of AAOG already, a further half a
million every month and a very thin monthly expenditure.
AAOG’s plan from the first quarter to produce from the
Mengo/R2 was pending the arrival of the one time simulation kit that was due to
arrive in April and give first oil in April.
After being shut in for 45 days, the 103 well was opened at
the end of March and Djeno oil flowed readily to the surface, under
“considerable” pressure. AAOG commissioned a company to look at producing from
103, under the preconceived idea of producing from the Mengo/R2. After Djeno oil
first flowed, a decision was taken to include the Djeno reservoir into the CPR
to be released this month.
The market should have cottoned on to the importance of the
Djeno flowing at this stage, however it didn’t.
Djeno: One of the world’s most sought after oils. A premium
is paid for Djeno oil, due to its high quality and ease of processing. It’s
also very low in sulphur. Most oils around the world are lucky to get Brent
minus 2-3 dollars. A few oils get true Brent price. Djeno is one of only a
handful of oils that get a premium to Brent, rising to Brent plus 30 cents in
April due to very strong demand.
The Djeno reservoir is highly productive. With a natural gas
mechanism, the Djeno field is highly pressurised. It’s low sulfure nature and
ability to flow, means that it naturally flows, normally at a rate of 5000bopd
and doesn’t have the tendency to reduce in flow unlike more waxy oils, until
the reservoir is depleated.
We know that producing 1500bopd from Mengo/R2 would be
fantastic, plenty of money in the coffers (1m a month), paying for other
drills. Mengo/R2 has a decline rate after the first year or so, but it would
pay for Djeno drills.
The first change to the plan to Mengo/R2 occurred with the
cryptic note from Fincap that AAOG were deciding whether to produce from Djeno
or Mengo?
We know that Djeno flowed, that in itself was unexpected.
But surely it was a just a bit of oil and couldn’t compare with the 1500bopd
from Mengo/R2?
Fast forward to after my holidays and yesterday I asked
David out right about 103. His reply, “Yes, as a result of analysis of the data
and also the oil coming to surface, the engineering team is looking at how to
produce from the Djeno in 103C.”
Yes, we could have a major delay from this decision but....
Switching to production that won’t decline, switching to production that is one
of the most sought after oils in the world and most importantly switching to
production which will clearly derisk 104 and beyond would be fantastic news.
To exploit the 5000bopd from a clean Djeno hit, then as per
the RNS, the topside facilities would need upgrading and truck transportation wouldn’t
be able to cope. If Djeno flows at 1500-2000bopd (as we’ve just hit a bonus
upper section), then the topside will likely be able to cope with the pressure
values (hence the 45 day test). We would also be able to cope with the
transportation with very limited new topside, it will easily be able to be
choked back.
All of this might take time though and the market is not
kind. Good news then that David also added that the new plan will be produced and
communicated to the market next week, with work to start shortly after that.
Maybe, the market will start to realise then that AAOG is
serious and not faking it about 103. Maybe the CPR will show the market how
large these new horizons are. But when the oil is flowing and folks should
remember that the hole is drilled and production facilities in place, the
market won’t be able to be sceptical any more….
