Solo Oil (LON: SOLO), a natural resources investing company focused on acquiring a balanced portfolio of production, development and exploration assets, has today announced its Unaudited Interim Results for the six months ended 30 June 2019.
· Completion of disposal of Company’s 30% interest in PEDL331 on the Isle of Wight
· Strengthening and reconstitution of the Board with Alastair Ferguson assuming the role of Executive Chairman
· Management team strengthened with appointment of Douglas Rycroft as General Manager
· Intervention and work-over operations resolved the Kiliwani North-1 subsurface safety valve issue with gas flowing to the plant during test period
· Change of representation by Solo on the Helium One board to support the progress of the company to a more operative phase
· The Company participated in a Convertible Loan Note pre-IPO funding round for Helium One Limited
· Board announced a new strategic focus for the Company aimed at delivering a balanced, full lifecycle portfolio comprised of production, development and exploration assets that provide a sustainable path for growth alongside funded G&A
· Signed Heads of Terms in March 2019 for the divestment of Solo’s 28.56% in Reef Resources Limited
· Group cash at 30 June 2019 £3.0m
Post Period Highlights:
· Completion of reprocessing of the selected 2D seismic lines over the Kiliwani North Development
· Ongoing planning work to perform the re-entry and remedial work at Kiliwani North-1
· Disposal of the Company’s remaining UKOG share position
· Announcement of partnership and risk sharing agreements with top-quartile service providers
· Management further strengthened with the announcement of Douglas Rycroft joining as Chief Operating Officer and Romina Mele-Cornish joining as Chief Financial Officer
· Further portfolio clean-up with disposal of the Company’s interests in the Burj Petroleum Africa Limited
· Continued screening process in line with Company’s New Business Development strategy to acquire assets that support the Board’s objective to achieve net production of at least 5,000 boepd within three years
Commenting on the Interim Results, Alastair Ferguson, Solo Oil Executive Chairman said:
“The Company has made further significant steps in H12019 towards its strategic goals with the additional rationalisation of its portfolio and strengthening of the management team to prepare the Company for a period of what we hope to be defined as strong growth and value creation. The work carried out to date in monetising the Company’s non-core assets provides us with a strong balance sheet enabling the Board and Management a platform to execute a strategic vision focused on returning value for shareholders. We aim to establish this company as a mid-cap E&P underpinned by high quality assets and solid cash flow. Furthermore, we feel confident that we have the right team and strategy in place to achieve these ambitious objectives within our stated timeframes.”
I am pleased to be providing this statement in my capacity as Executive Chairman of Solo. H12019 and through to now has been a significant period for Solo with major corporate and operational changes across the Company and within the portfolio. The Company has now clearly defined a strategic vision and positioned itself for sustainable long-term growth.
The Board’s focus in the first half the year was three-fold:
o Complete the heavy lifting organizational transformation so that the Company is ready for a sustainable growth plan with a dual focus on acquiring assets and realizing value from the existing core portfolio;
o Strengthen the Company’s board and management and ensure that governance, structures and policies are in place to support the growth plan; and
o Commence a highly active period of screening opportunities (c.20) in line with strategic objectives – the Board has taken 5 identified opportunities forward through due diligence and carried 3 into detailed negotiation.
In March 2019, the Board completed an extensive review of the Company and its growth strategy. The Board has identified the following strategic objectives as being core to long-term value creation and will shape the business going forward around these considerations:
o Critical importance of free cash flow in building a sustainable business;
o Identification of the dynamics of the European gas market as being particularly attractive for investment;
o Continued portfolio rationalization;
o Actively screening acquisition opportunities with a net production target of at least 5,000 boepd within 3 years;
o Initial screening focus is on European gas assets and also North African countries with benign jurisdictions and attractive pricing dynamics
o Develop a ‘low-cost’ investment model that maximises risk adjusted value returns to shareholders and minimises equity dilution; and
o The inorganic growth model is not dependent on the rationalisation of the Company’s existing assets due to the focus on capital efficient transaction structures.
The Board has been actively reviewing acquisition opportunities and continues to be involved in a number of ongoing processes. Further updates will be provided if, and when, appropriate. Any acquisition would be consistent with the strategy, set out above to create a scalable oil and gas business with a focus on capital efficiency and one that can deliver shareholder returns in all oil price environments.
Material events year-to-date
Disposal of interest in PEDL331 License
In December 2018, the Board was pleased to announce that it had entered into a conditional sale and purchase agreement to dispose of its entire 30 per cent. interest in PEDL331 on the Isle of Wight to UK Oil and Gas plc (LON: UKOG) for a total consideration of £350,000.
With an effective date of 11 December 2018, the total consideration was satisfied through the issue of 17,989,326 new ordinary shares in UKOG and cash of £90,450. The Consideration Shares were calculated based on the 5-day volume weighted average price to 10 December 2018 of 1.4428 pence.
Following the completion of the conditions precedent the deal was completed in January 2019. Based on the £350,000 consideration, Solo has made an investment return of 2.25 times its historical investment in the IOW.
The Ruvuma Gas Development remains the core asset within the Solo portfolio and following the successful farmout of Aminex’s interest in the Ruvuma Gas development to The Zubair Corporation (subject to government approval) the Joint Venture continues to prepare for the drilling of the Chukumi-1 well and future development. The Company is fully funded for its share of the Chikumbi-1 well due to be drilled upon receipt of the licence extension. The well will be a key test of the Ntorya Gas Field, designed to encounter the Albian aged reservoirs 120 meters up-dip of the Ntorya-2 well alongside a potential play opening test of the Late Jurassic in a deeper exploration target.
Work completed in late 2018 by Aminex plc (operator of the Ruvuma PSC) along with independent reserve work conducted by RPS Energy Consultants Ltd. (“RPS”) has assigned the Albian aged Ntorya Gas Field a mean un-risked GIIP of 1.87 TCF (468 BCF net to Solo), with total combined gross 2C Resources of 763 BCF (191 BCF net to Solo), and has additionally assigned 936 BCF (234 BCF net to Solo) of 2U Resources (previously equivalent to “Best Estimate” Prospective Resource) to the Jurassic aged Chikumbi prospect.
With its existing gas infrastructure and growing market demand for gas, the Ruvuma Gas Development can play a critical role in the supply of the domestic market in Tanzania. The Company regards the investment by the government in the critical gas infrastructure of pipelines and processing facilities as a huge value add to the project. The Joint Venture continues to progress a phase 1 development targeting an early gas production / commercialisation development allowing for accelerated cash flow to the partnership and providing much needed gas into the Tanzania domestic market. This will provide the foundation of a full field development currently scoped to provide 140 MMSCFD. The Joint Venture is confident of the underlying market requirements to subsume this volume. The Aminex / Zubair farmout demonstrates the commercial validity and the operational viability of the Ruvuma project as a key domestic gas project in East Africa.
Solo saw positive progress with regards to its early-stage investment in Helium One during H12019. In May, He1 underwent a significant Board and Management were augmented to introduce greater operational expertise and capability to the company as it transitions to the public market and moves into a critically important phase of establishing value through targeted exploration drilling of its exploration acreage in Tanzania. He1 is currently completing a pre-IPO fundraise and plans to list on the ASX during October 2019. Exploration drilling is planned to follow IPO in early 2020.
The Company now holds 20.0 million shares in He1 equivalent to a c.13.8% interest. Solo participated in a CLN pre-IPO funding round earlier in the period which is expected to be convert into equity as part of the pre-IPO and IPO process. This will deliver an additional 1.1 million shares in He1 to Solo. Solo’s final ownership interest in He1 will be determined by the exact number of shares issued during the pre-IPO and the IPO but the Company estimates is shareholding will be between 9-10%.
Solo continues to monitor its investment in He1 closely as it progresses to public market in 2H 2019 and advances the planned drilling programme in early 2020.
During the period, on the Kiliwani North asset, in which Solo holds 8.39% interest, the operator Aminex have progressed further remedial work on the Kiliwani North-1 well, in order to reinstate production from the field.
The Joint Venture took the decision to accelerate the reprocessing of the existing 2D seismic, to plan for the acquisition of new 3D seismic with the aim to transition Kiliwani South from a prospect to a drill ready target (operator estimates of 57 billion cubic feet gas initially in place). The decision was taken to advance this work as current market conditions allow the joint venture to take advantage of the competitive pricing environment.
Post-period, the operator has announced the completion of the reprocessing of the select 2D seismic lines over the Kiliwani North Development Licence with minor re-iterations requested from the processor. Data from the reprocessing will benefit the design of a 3D seismic survey and remapping of the licence, using the reprocessed lines, will occur once we have received the final data. The joint venture continues to source equipment to perform the reentry and remedial work on Kiliwani North-1. The re-entry, which has been designed to be carried out at minimal costs, is of value to investigate fluid levels in the well and provide an accurate bottom hole pressure measurement which will provide useful reservoir data for future operations and production and Press Release equipment is being ordered.
In March 2019, Solo announced that it had signed a HoT with Levant Exploration and Production Corp. (“Levant”) for the divestment of Solo’s 28.56% in Reef Reef to Levant. The Company’s exit of its shareholding in Reef is subject to definitive documentation being agreed and further demonstrates the Company’s commitment to rationalise its existing portfolio as it delivers its growth strategy.
In addition, the Company announced that it had entered into a sales and purchase agreement (“SPA”) to exit its 20% holding in Burj Petroleum Africa Limited (“Burj”) with existing shareholder in Burj. Subject to no other shareholders in Burj exercising their pre-emption rights in relation to the proposed sale by Solo, Solo will so relinquish any future costs associated with Burj. The Board expect the deal will complete at the beginning of October 2019.
Post period, the Company has disposed of its full position of UKOG shares.
These divestments are part of the Board’s ongoing efforts to rationalize the historic portfolio of the Company and ensure that exits can be delivered in way to either extract value or are relinquished to limit any future costs, depending on which options are viable and in the interest of the Company.
Solo is currently at a critical juncture with regards to executing its planned growth strategy and setting the Company on a path to sustainable growth. We continue to focus our efforts on the business development activities as we seek to underpin the Company with high quality, cash generative assets. Concurrently, we continue to explore value realisation opportunities from our existing portfolio, and believe we will be better placed to extract maximum value from these high impact assets as we achieve further scale.
We expect the second half of the year to be a transformative period in which we intend to continue to deliver our strategic evolution in line with our ambitious growth objectives.