Piggybacking on the hunt for massive oil discoveries
BY JAMES STAFFORD
July 25, 2013
Africa is becoming the top choice for North American oil companies looking to diversify, and the East African Rift is the hottest of the hot, with Kenya waiting on commercial viability, Angola and Ghana already on the road to rival Nigeria and two newcomers—Namibia and Zambia—where the doors have been thrown open for exploration. Getting in on Namibia and Zambia is an extremely expensive endeavour, but here's a way to de-risk this adventure, keep your shareholders calm and strategically position yourself to take advantage of the next big find without footing the massive drilling bill: Buy up a ton of acreage and sit back and let others do the expensive exploration and drilling on territory adjacent to yours. Then strike and watch offers come in.
In an interview with Oilprice.com, Alberta Oil Sands (AOS) CEO, Binh Vu … discusses:
James Stafford: With the oil discoveries in Kenya and a lot of optimism over other rifts and lake systems including those present in Uganda, Zambia, Tanzania, etc. the East African Rift System has become an emerging oil hot spot. What we want to know is how to make money here without spending a ton of cash in exploration and drilling? What's the smart way to stake a claim on the East African Rift Basin?
AOS: That is a great question. The truth is that this area has become quite expensive as it has been found to be increasingly prolific. Major signing bonuses, deposits, and commitments are required in spots like Kenya, Tanzania, and Uganda. There is very little opportunity for the junior explorers to compete.
We believe that Zambia is a fabulous jurisdiction because it shares the geology and rock age in certain large areas that have hosted the Lake Albert Discovery and the Block 10BB Kenya discovery. However, it is totally underexplored for hydrocarbons and thus provides much cheaper access to very prospective areas. Our company has successfully tied up ~18 million acres or what we believe covers about 33% of the attractive rift areas in Zambia - which equates to oil and gas rights over about 8% of the country.
James Stafford: How does an exploration company on a budget go about covering and "high-grading" targets over such a large area?
AOS: Without a doubt that is a highly important question for any company engaged in the pursuit of elephant-sized targets in new frontiers. One of the things that we do is first is aim for concession agreements that don't tie us to expensive immediate seismic commitments. Second we eschew large and expensive 2-D seismic programs in favor of a process of high grading using satellites, other remote sensing techniques, and 'ground truthing'.
We estimate that by using satellite data analysis over a number of criteria--gravity gradiometry, thermal emissivity analysis, geobotany analysis including vegetation anomalies and geo-microbial review over specific high-graded areas on our acreage--we can save millions of dollars and years of time. We then get to specific areas that are ready for smaller, focused electroseismic surveys / 3-D surveys, and that can then be attacked as drillable targets either to take on ourselves, or to farm down to majors who are looking for the next major rift discovery.
ames Stafford: What does the playing field look like right now in Zambia? Who's there, what are they doing, and how are you positioned to take advantage of all the money being spent there on exploration and drilling?
AOS: There are a number of companies there and we have focused on two lakes as well as two dry rifts that show very promising gravity responses from the most up to date databases. Our number one focus is on Lake Tanganyika. This lake spans through Burundi, Tanzania, DRC, and Zambia.
There are currently to our knowledge at least three major active seismic programs on Lake Tanganyika including one recently completed by Beach Energy, an Australian company with a $1.75 billion valuation. Beach is directly adjacent to AOS, on the Tanzania side of the Lake. It is likely that Lake Tanganyika will see at least 1 drill hole in 2014.
We like Lake Tanganyika as the right spot for the next Lake Albert (3.5 billion barrels reserves) discovery because of the almost identical geological setting and rock age as well as the size of the Lake and the major indications of an existing petroleum system. Lake Tanganyika has multiple oil slicks and natural oil seeps including one that is believed to be the largest natural oil seep in the world. You can see it from Google Earth.
James Stafford: You've also recently acquired acreage in Namibia, which just made its first-ever commercial oil discovery. What are the prospects here and what kind of timeframe are we looking at?
AOS: I'm glad that you asked that. Namibia to us is a potentially direct analogue to all of the major offshore discoveries in Brazil (plate tectonics theory) and Angola to the north. Offshore Namibia has the identical age and rock type as the discoveries in offshore Angola. Combined, those two countries have nearly 30 billion barrels in reserves.
Namibia itself, however, remains highly underexplored with only 16 wells drilled in 20 years--seven on Kudu Gas Field alone--and the majority of the rest were shallow shelf wells. People are starting to get the idea and now. BP, Petrobras, Repsol, Galp Energia, HRT, are all there.
HRT has had success there on their first well of this three-well campaign where they discovered light oil for the first time. Their second well was dry. The third well on which they will begin drilling in August in their PEL-24 block which borders directly on to AOS' 2.5 million acre land package in the Orange Basin - blocks 2712A and 2812A. We are at ground zero.
HRT rates their play chance there at 25% and to my knowledge it is their biggest target--a 30 billion barrel monster. If that one works, I would think that there will be companies knocking down our door. We will know likely in late September, maybe the beginning of October.
Regardless, there should be at least five more wells drilled and $500 million to $1 billion being spent offshore Namibia over the next 12-18 months, so it really fits well with our strategy of being in highly active basins where majors and big independents are spending lots of money around us to prove up major discoveries.
James Stafford: AOS' new Africa portfolio is an ambitious diversification of its original assets in Alberta oil sands. Why the need for diversification here?
AOS: It is indeed; however, I think that what shareholders need to understand (and many of ours do not) is that AOS has been traded for the last 24 months strictly on its balance sheet. It basically always trades at its cash per share. Why is that? Very simply there is or has been in recent times, very little capital market appetite or excitement for small companies developing SAGD oilsands plays.
Athabasca Oil was one bright spot, but that was a marvel of financial engineering that caught a window.
AOS has 500+ million barrels of oil sands resources which are getting no value. Combine a terrible junior market with complete apathy for this asset class, and the result is a share price that declines almost in lockstep with the treasury, and a total lack of response or enthusiasm to basically just about any kind of positive news.
We feel that while AOS is underpinned by its cash and by real assets on which the company has spent almost $65 million developing since 2007, it adds meaningfully to shareholder value by bringing into the fold, as cheaply as possible, blue sky scenarios with major lottery ticket potential and requiring little to no cost commitments over the next 12-18 months.
Ultimately, as we gain approval at our flagship Clearwater project in Alberta, part of our plan as we examine our options to unlock value in two distinct plays could be to dividend out our African assets to shareholders into a new company on a 1 for 1 basis, such that shareholders retain 1 pure play share of Oilsands in Alberta (Clearwater, Grand Rapids, Algar Lake), and one pure play share of our 21 million acre and growing high-impact African exploration portfolio (Zambia, Namibia, DRC).
BY JAMES STAFFORD
July 25, 2013
Africa is becoming the top choice for North American oil companies looking to diversify, and the East African Rift is the hottest of the hot, with Kenya waiting on commercial viability, Angola and Ghana already on the road to rival Nigeria and two newcomers—Namibia and Zambia—where the doors have been thrown open for exploration. Getting in on Namibia and Zambia is an extremely expensive endeavour, but here's a way to de-risk this adventure, keep your shareholders calm and strategically position yourself to take advantage of the next big find without footing the massive drilling bill: Buy up a ton of acreage and sit back and let others do the expensive exploration and drilling on territory adjacent to yours. Then strike and watch offers come in.
In an interview with Oilprice.com, Alberta Oil Sands (AOS) CEO, Binh Vu … discusses:
- How to get in elephant-sized plays in the East African Rift
- How to save cash by piggy-backing on others' expensive exploration
- Why Namibia could be a major oil monster
- What makes Zambia such an attractive oil venue
- Other African plays that are worth looking into
- Why it's hard for juniors to compete in Africa
- Why someone will always need Canadian oil sands
- What heavy oil economics will look like over the coming years
- Why Canada's Algar Lake is a major sleeper play
- What qualities investors should look for when betting on juniors
James Stafford: With the oil discoveries in Kenya and a lot of optimism over other rifts and lake systems including those present in Uganda, Zambia, Tanzania, etc. the East African Rift System has become an emerging oil hot spot. What we want to know is how to make money here without spending a ton of cash in exploration and drilling? What's the smart way to stake a claim on the East African Rift Basin?
AOS: That is a great question. The truth is that this area has become quite expensive as it has been found to be increasingly prolific. Major signing bonuses, deposits, and commitments are required in spots like Kenya, Tanzania, and Uganda. There is very little opportunity for the junior explorers to compete.
We believe that Zambia is a fabulous jurisdiction because it shares the geology and rock age in certain large areas that have hosted the Lake Albert Discovery and the Block 10BB Kenya discovery. However, it is totally underexplored for hydrocarbons and thus provides much cheaper access to very prospective areas. Our company has successfully tied up ~18 million acres or what we believe covers about 33% of the attractive rift areas in Zambia - which equates to oil and gas rights over about 8% of the country.
James Stafford: How does an exploration company on a budget go about covering and "high-grading" targets over such a large area?
AOS: Without a doubt that is a highly important question for any company engaged in the pursuit of elephant-sized targets in new frontiers. One of the things that we do is first is aim for concession agreements that don't tie us to expensive immediate seismic commitments. Second we eschew large and expensive 2-D seismic programs in favor of a process of high grading using satellites, other remote sensing techniques, and 'ground truthing'.
We estimate that by using satellite data analysis over a number of criteria--gravity gradiometry, thermal emissivity analysis, geobotany analysis including vegetation anomalies and geo-microbial review over specific high-graded areas on our acreage--we can save millions of dollars and years of time. We then get to specific areas that are ready for smaller, focused electroseismic surveys / 3-D surveys, and that can then be attacked as drillable targets either to take on ourselves, or to farm down to majors who are looking for the next major rift discovery.
ames Stafford: What does the playing field look like right now in Zambia? Who's there, what are they doing, and how are you positioned to take advantage of all the money being spent there on exploration and drilling?
AOS: There are a number of companies there and we have focused on two lakes as well as two dry rifts that show very promising gravity responses from the most up to date databases. Our number one focus is on Lake Tanganyika. This lake spans through Burundi, Tanzania, DRC, and Zambia.
There are currently to our knowledge at least three major active seismic programs on Lake Tanganyika including one recently completed by Beach Energy, an Australian company with a $1.75 billion valuation. Beach is directly adjacent to AOS, on the Tanzania side of the Lake. It is likely that Lake Tanganyika will see at least 1 drill hole in 2014.
We like Lake Tanganyika as the right spot for the next Lake Albert (3.5 billion barrels reserves) discovery because of the almost identical geological setting and rock age as well as the size of the Lake and the major indications of an existing petroleum system. Lake Tanganyika has multiple oil slicks and natural oil seeps including one that is believed to be the largest natural oil seep in the world. You can see it from Google Earth.
James Stafford: You've also recently acquired acreage in Namibia, which just made its first-ever commercial oil discovery. What are the prospects here and what kind of timeframe are we looking at?
AOS: I'm glad that you asked that. Namibia to us is a potentially direct analogue to all of the major offshore discoveries in Brazil (plate tectonics theory) and Angola to the north. Offshore Namibia has the identical age and rock type as the discoveries in offshore Angola. Combined, those two countries have nearly 30 billion barrels in reserves.
Namibia itself, however, remains highly underexplored with only 16 wells drilled in 20 years--seven on Kudu Gas Field alone--and the majority of the rest were shallow shelf wells. People are starting to get the idea and now. BP, Petrobras, Repsol, Galp Energia, HRT, are all there.
HRT has had success there on their first well of this three-well campaign where they discovered light oil for the first time. Their second well was dry. The third well on which they will begin drilling in August in their PEL-24 block which borders directly on to AOS' 2.5 million acre land package in the Orange Basin - blocks 2712A and 2812A. We are at ground zero.
HRT rates their play chance there at 25% and to my knowledge it is their biggest target--a 30 billion barrel monster. If that one works, I would think that there will be companies knocking down our door. We will know likely in late September, maybe the beginning of October.
Regardless, there should be at least five more wells drilled and $500 million to $1 billion being spent offshore Namibia over the next 12-18 months, so it really fits well with our strategy of being in highly active basins where majors and big independents are spending lots of money around us to prove up major discoveries.
James Stafford: AOS' new Africa portfolio is an ambitious diversification of its original assets in Alberta oil sands. Why the need for diversification here?
AOS: It is indeed; however, I think that what shareholders need to understand (and many of ours do not) is that AOS has been traded for the last 24 months strictly on its balance sheet. It basically always trades at its cash per share. Why is that? Very simply there is or has been in recent times, very little capital market appetite or excitement for small companies developing SAGD oilsands plays.
Athabasca Oil was one bright spot, but that was a marvel of financial engineering that caught a window.
AOS has 500+ million barrels of oil sands resources which are getting no value. Combine a terrible junior market with complete apathy for this asset class, and the result is a share price that declines almost in lockstep with the treasury, and a total lack of response or enthusiasm to basically just about any kind of positive news.
We feel that while AOS is underpinned by its cash and by real assets on which the company has spent almost $65 million developing since 2007, it adds meaningfully to shareholder value by bringing into the fold, as cheaply as possible, blue sky scenarios with major lottery ticket potential and requiring little to no cost commitments over the next 12-18 months.
Ultimately, as we gain approval at our flagship Clearwater project in Alberta, part of our plan as we examine our options to unlock value in two distinct plays could be to dividend out our African assets to shareholders into a new company on a 1 for 1 basis, such that shareholders retain 1 pure play share of Oilsands in Alberta (Clearwater, Grand Rapids, Algar Lake), and one pure play share of our 21 million acre and growing high-impact African exploration portfolio (Zambia, Namibia, DRC).
