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Market cautious as Anglo African Oil & Gas votes on Tilapia placing (AAOG)

It’s crunch time for Anglo African Oil & Gas (LSE:AAOG), as it gears up for a make-or-break meeting on Monday that will see investors vote on whether to approve a recent £7.4m placing. The shares are currently trading at 9.2p to 9.5p, a healthy premium to the proposed 8p placing price, but if all goes to plan next week big gains could be ahead.

The firm announced earlier this month that it had conditionally raised the money to fund the entire cost of drilling the multi-horizon TLP-103 well at its 56pc-owned Tilapia field in the Republic of the Congo. Anglo African, formerly Namibian Resources, said it would be potentially transformational for the company if it could complete a drilling programme on the TLP-103 well. The move could allow it to begin extracting oil from the Mengo Sands and the Djeno Sands, two deeper horizons that are both prolific producers on nearby fields.

However, many are likely to be sitting on the fence until they see whether the majority of investors approve the placing on Monday. They are concerned because Anglo African’s largest shareholder Sister Holding, owner of a 23.5pc stake in the business, has made clear it does not support the placing. Sister was the firm that Anglo American bought Tilapia off back in 2015, leading many punters to speculate that it is trying to get the asset back now that it looks more attractive in the higher oil price environment.

If Anglo African does not get enough backing to place the then there is a chance the company could run out of money, or even get taken private. There is all to play for, but sources indicate that the company’s other shareholders have rallied to vote the placing through.

Approval of the placing requires a majority of over 50pc of the votes received to be in favour of the fundraise. Although Sister Holding has the largest single holding, there should be strong support from other holders since failure to raise the funds would be very detrimental to the company. Investment manager Miton, owner of a 15.1pc stake in Anglo African has already agreed to subscribe for 13.9m of the 92m placing shares so appears to be in favour of the raise. Likewise, Anglo African’s directors, who collectively own around a 1.2pc stake, have also said they will back the resolution.

As it would be unusual for a majority of investors vote in a way that would put a firm at risk of going private, it seems likely that Anglo African will get the support it needs. However, this is not a certainty.  If the placing passes, there will be an overhang of investors who paid 8p a share selling off into any rise that could hold the price back initially –shares currently sit at 9.3p.

Once this overhang clears, things could look promising as the business develops Tilapia under its new chief executive James Berwick, who joined in January. Berwick told us in March that he is ‘fully focused’ on drilling TLP-103- although this is hardly surprising given that a large chunk of Anglo African’s future potential lies in the well.

TLP-103 will target producing reservoirs containing 2m barrels and an 8.1m barrel gross contingent resource discovery. Anglo African will also test a deeper prospect with a 58.4m barrel resource. In a previous interview with ValueTheMarkets, Anglo African’s executive chairman David Sefton said that if TLP-103 is a success, the company plans to roll out a full-field development plan for Tilapia. It will then look at nearby assets that are complementary and can be brought into production in the near-term.

The plan is for this to ultimately take the business to its >1,000bopd production target. If this occurs, drilling on the Mengo and Djeno sands on Tilapia is successful, and oil prices are not less than $30bbl then the firm plans to distribute free cash to shareholders through regular dividends of at least 50pc of net profits. If production reaches 5,000bopd and oil prices are above $30/bbl, then the bonus will be at least 75pc of net profits. With so much at stake, Monday is likely to represent a pivotal moment in Anglo African’s narrative.

Author: Daniel Flynn

The author does not own shares in the company mentioned in this article.

 

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