In December 2015, African Petroleum (APCL) announced it had entered into a farm-down agreement with Ophir Energy over its CI-513 licence area. On 10 March the transaction completed. This will trigger a payment of US$16.9m towards APCL’s back costs, provide it with a well-funded partner and is a vote of confidence in its asset quality. The deal was made possible by the flexibility shown by the Côte d’Ivoire government to make fiscal terms more attractive and the extended drilling timetable, which is important in the current macro environment. The cash payment will fund APCL to continue to farm down its other assets in West Africa, many of which are close to recent discoveries in Senegal and Mauritania. We await further deals and the probable announcement of drilling in 2017.
It has taken a little time but the final Ministry signature has been now been obtained and the deal is complete. Ophir, along with the rest of the industry, has cut back markedly on exploration as the oil price plummeted. Even so, it has been willing to farm-in to one of APCL’s blocks, in a move we think should give investors increased confidence in the block’s quality. While drilling is some time away (the partnership has two years), an industry partner has shown confidence at a time when not to do a deal would have been an easier decision.
With the CI-513 deal now complete, it is important to review the potential of the other assets in APCL’s portfolio. We encourage investors to look at our previous notes, but in summary, blocks in Senegal and The Gambia are next to two discoveries made by Cairn/FAR in 2014, where estimates of recoverable oil have grown significantly with the successful 2015/2016 appraisal/testing campaign.
With a well due by the end of 2017, it may still be too early to assign a RENAV for APCL, particularly as the company will need to raise further capital to fund the well (either through deals or equity). The completion of the deal is a notable event for APCL and we hope it bodes well for farm-downs of other blocks, despite the poor market sentiment and low oil price. We expect to assign a RENAV to APCL once a well is scheduled.