Saturday, September 23rd 2023

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Anglo African Oil & Gas remains weak following major well delay – is there any chance of a turnaround?

Anglo African Oil & Gas has had a difficult month following a severe drilling delay at its highly prospective TLP-103 well in the Congo, with shares falling to lows of 7.4p before returning to their current 9.5p. With the business now re-spudding the well, is there chance things could get back on track?

Major project

Since June, Anglo African’s share price has mostly been dictated by the progress of the TLP-103, which is based on its 56-owned, producing Tilapia field in the Republic of the Congo.

TLP-103, which the business has described as ‘potentially transformational’, will be drilled to an intended total depth of 2,700m targeting multiple horizons. Initially, it will focus on the shallow R1/R2 sands that are already producing at Tilapia. It will then move on to a discovery in the lower Mengo sands with an 8.1MMbbls contingent resource before moving to a deeper exploration prospect in the Djeno interval where an adjacent field is producing at 5,000bopd. Depending on the results of these three horizons, the well may also be extended down to test another horizon called Vanji,

Things got off to a strong start for Anglo African here in June when, following rumours of a boycott, investors approved a £7.4m placing to fund the entire cost of drilling TLP-103. Things moved on swiftly, with the firm announcing the arrival of its rig after a short delay before finally spudding the well on 15 August with completion expected after 64 days. The bonanza of bullish news led shares to hit highs of 13p

Unexpected delays

Unfortunately for Anglo African’s investors, things turned sour very suddenly at the beginning of September when the firm reported that it had decided to temporarily suspend drilling TLP-103. It made this decision after its drilling contractor SMP said it had experienced an unspecified topside issue that had affected its rig.

Things went from bad to worse two days later when Anglo African announced that SMP had encountered several challenges during shallow drilling. It said this was caused by localised geological conditions that resulted in ground movement that impacted the safe operation of SMP’s rig. The two firms announced that they had jointly decided to cease drilling, abandon the current location and move the rig 100m to the north-west and re-spud the well. It said this process would take around 25 days before another 64 days of drilling after re-spudding has taken place. The business also announced that it has had ‘offers of debt finance sufficient to meet any cost overruns due to the delay and need to re-spud’.

All-in-all, the disruption significantly dented the market’s sentiment towards Anglo African, with shares diving by 35pc to 7.6p over five days of trading. They have since bounced back to 9.5p.

Can it recover?

From whatever way you look at it, this month’s disruption is worrying for Anglo African given how significant TLP-103 is to its prospects. First of all, the additional costs to be accrued by the company as a result of re-spudding and moving the well could be an issue. Until we get further clarity, it is especially disturbing that the firm may partially rely on debt to fund the additional costs.

Secondly, there is the obvious concern that Anglo African will be unable to overcome the issues at the well. a best-case scenario where its solution does work, the potential remains. Indeed, given that the firm had only begun shallow drilling when it encountered the issues, the fundamental case for drilling – i.e. the potential of the Mengo and Djeno sands – is still in place. If this happens, then the impact of the delay is unlikely to be too brutal.

There is also some comfort to be had in the fact that Anglo African’s shares have once again bounced back above their recent 8p placing price, after hitting lows of 7.6p.

The delays and problems at TLP-103 could pose a significant problem for Anglo African. However, for the time being, at least, the well could yet be a success. It may be worth keeping an eye out for any updates from the business over coming weeks as it progresses with its re-spud. Taking advantage of current share price weakness is likely to be too risky for many investors’ tastes.

David Sefton, chairman of Anglo African Oil & Gas  updates on plans to re-spud the TLP 103 well on the Tilapia field
The author does not hold shares but was remunerated