Fantastic news out for Solo Oil Plc (LON:SOLO) by the partners in the Kiliwani North gas field (Ndovu Resources Ltd (Aminex) 55.575 % (operator), RAK Gas LLC 23.75 %, Bounty Oil & Gas NL 9.5 %, Solo Oil plc 6.175 % and TPDC 5 %) who have finally been able to secure a Gas Sales Agreement (GSA) that now means the production ready KN-1 well can start to flow gas and help generate cash flows for the partners in the agreement.
So what will this mean in terms of cash flows for Solo Oil Plc?
Approximately 20 million cubic feet of gas per day will start flowing from the Kiliwani North KN-1 well to the Songo Songo gas processing plant. This is a facility that has a capacity to process between 1.98 MMcm/d (70 MMcf/d) and 2.97 MMcm/d (105 MMcf/d)
Gas from the KN-1 well, following processing, will flow through a 12 inch pipeline that runs 25 km (15 miles) from Songo Songo Island to the Somangafungu onshore processing facility where it is then transported another 207 km (129 miles) by a 36 inch pipeline to the Ubongu power plant in the Tanzanian capital, Dar es Salaam.
Under the GSA, the partners will receive US$3.00 per mmbtu (approximately US$3.07 per mcf) and the price will be adjusted annually by applying an agreed United States Consumer Price Index. The gas price is not linked to any commodity price so is unaffected by current commodity market conditions, which is a real benefit to the partners, meaning business and financial planning can be undertaken by the partners based on stable pricing and incomes from
Solo will benefit from cash flow of $50,000 per month on start up phase
rising to $100,000 and up $230,000 US$ per month on exercise of full percentage production share.
At a flow rate of 20 MMCF per day / circa 600 MMCF per month. (600,000 MMBTU per month), Solo’s share is initially a 6.175 % based production share ie 37,050 MMBTU per month. Based on the agreed GSA contract price of $3.00 MMBTU, Solo will secure a monthly cash flow of circa $111,150, on a full production level at 6.175%, initially, the income in the start up phase will be circa $50,000 per month.
If Solo decide to exercise their option to increase their stake to 13% then their share of monthly production would be 78,000 MMBTU and would deliver monthly cash flows of $234,000, on full production flow helping generate close to $3 million in annual cash flows.
Solo Oil Plc has Set Itself Apart from its peers on AIM
For investors in Solo, the news today should be seen as game changing. Given the difficulties companies operating in the oil and gas sector are having in raising capital on the AIM market at the moment, Solo has now set itself apart from its exploration peers and moved into new business territory, where it will be able to deploy its cash resources to help advance its other assets which include the massive potential locked in the Ntoya and Ruvuma Basin PSA where potentially at Ntoya another 20 MMCF per day could flow.