Oil and gas firm Aminex (LSE:AEX) told investors it has secured a transformational farm-out deal to accelerate the development of its major Ntorya project in Tanzania today, leading shares to soar 29pc higher to 2.9p. ARA Petroleum Tanzania, an affiliate of Zubair Corporation, will pay Aminex $5m for a 50pc interest in its 75pc-owned Rumuva production sharing agreement (PSA), which includes Ntorya’s 1.87TCF gas initially in place.
Under the terms of the farm-out, ARA will also have to drill, complete, and test a well named Chikumbi-1 (formally Ntorya-3) and acquire, process, and interpret 3D seismic over 200km2 within the Ntorya area. It must also establish an early production system to achieve accelerated first gas to a minimum gross rate of 40MMcf/d. equivalent to around 6,700bbls/d.
Finally, ARA will also fully carry Aminex for its share of costs up to $35m in respect of its remaining 25pc stake in the Rumuva PSA. This implies a potential expenditure during the carry period of up to $105m for the aggregate working interest without the need for new funding by Aminex, according to the firm. What’s more, if 40MMcf/d is achieved before Aminex’s 25pc interest is carried, APT must assign a quarter of its share of profit gas to pay the unspent carry amount until the full $35m is realised.
Jay Bhattacherjee, chief executive of Aminex, said: ‘With the Ntorya project carried to a minimum level of production it is now expected that the Company will be self-funded for further development. Aminex continues to develop its Kiliwani and Nyuni assets and is undertaking a review of other opportunities which will deliver robust shareholder returns.’
Sultan Al-Ghaithi, CEO of ARA Petroleum LLC added: ‘Today’s announcement emphasises our firm belief in the Aminex portfolio and in Tanzania, where the Zubair Corporation group of companies has existing business interests and enjoys strong relationships and an excellent reputation. We look forward to continuing to work with Aminex and the Tanzanian government to help bring forward development of this nationally important asset.’
Today marks a landmark deal for Aminex that enables it to advance Ntorya, an asset with really exciting potential – 1.8TCF is a lot of gas. To put this figure into perspective, a big gas field in North America typically has gas reserves of around 1-10Bcf, while a particularly large field will contain between 500bcf and 1Tcf. Anything over 1Tcf becomes recognised as globally significant.
We highlighted Aminex as a buy in January, when Bhattacherjee told us Ntorya is ‘an asset of national importance’ for Tanzania, which has the power to change the country’s rate of industrialisation. Because of this, Tanzania’s government has built the infrastructure needed to get gas out of the ground for the firm, significantly cutting costs.
As we wrote at the time, with the Ntorya discovery offering great upside and Tanzania providing a developing resource-rich backdrop, concerns over liquidity and fears associated with operating in Africa seem overcooked. With a farm-in now in place, the development of Ntorya can accelerate without the need for diluting Aminex’s investors – it will be interesting to see where shares go from here.