Solo Oil plc (LON:SOLO), the AIM investing company, has today provided the following update regarding its 25% non-operated interest in Ruvuma PSA Joint Venture in Tanzania.
The Company has noted that it has received confirmation from the Operator, Ndovu Resources Limited, that the Mtwara Exploration Licence, which sits within the Ruvuma PSA, and contains the Ntorya Gas field has been formally extended by the Ministry of Energy of Tanzania.
The key terms of the extension are as anticipated and consistent with those previously set out as follows:
During the period of one year commencing from 17 April 2020, the JV will:
• Acquire 200 square kilometres (surface coverage) of 3D seismic (min. expenditure of US$7 million)
• Drill the Chikumbi-1 exploration well (min. expenditure of US$15 million)
• Complete the negotiation of the Gas Terms for the Ruvuma PSA with the Tanzania Petroleum Development Corporation (“TPDC”)
• Using the data gathered from Chikumbi-1 and the seismic acquisition, prepare and submit an application for a Development Licence for the Ntorya Location area.
It is noted that receipt of this extension was one of the last remaining conditions required for Aminex PLC (the owner of Ndovu Resources Limited) to close the farm-out agreement with ARA Petroleum Tanzania Limited (“ARA”).
It is acknowledged by all parties that the full work programme is unlikely to be completed during this extension period and Solo understands that the Operator will therefore apply for an additional extension(s) as necessary and as permissible under the current legislation. In the meantime, the Company, with its JV partners, will continue to prepare for this work programme. Solo notes that the above costs are minimum expenditures per the extension terms. The Operator has previously announced an estimate of $40m for the work programme, which would imply an expenditure amount US$10 million for Solo’s 25% interest over the work programme period, which will extend into 2021. The JV partners are evaluating the cost of the work programme in light of current market conditions and expect the near-term programme to be delivered at significant savings to previous estimates. The Company further notes that the Operator has already performed many pre-drilling and pre-seismic technical planning and contractual acquisition activities.
Tanzanian strategy update
As previously announced on 2 March 2020, the Board launched a formal process to explore value realisation options for its assets in Tanzania. The Company has seen an encouraging level of interest in its Tanzanian assets and a number of interested parties have requested access to the data room. The Board remains confident in the inherent value of its 25% interest in the licence – supported by the abovementioned extension, which provides clear visibility on the route to commercialising this strategically and economically important asset.
The Company will consider reasonable offers and remains pragmatic in the context of the challenges faced by energy market participants against the current global backdrop. The Board will base any decision on what is in the best interests of Solo’s shareholders and will provide further updates in due course.
Commenting on the update, Solo Oil CEO Tom Reynolds said: “This extension is incredibly encouraging and reflects a prolonged period of engagement between the JV and the Tanzanian government. The Ruvuma asset is strategically and economically important for the country and contains significant upside potential and value that can now be unlocked as a result of this extension, particularly where there is substantial regional demand for natural gas.
An additional benefit, which will interest prospective counterparties, is that existing gas production in Tanzania is typically sold under term sale contracts which are largely insulated from the volatility in global commodity markets. This renewal provides a clear line of sight to the commercial development of this asset and increases Solo’s optionality to realise value from it.”