African Petroleum Corporation — Update 17 March 2016

African Petroleum Corporation — Update 17 March 2016

African Petroleum Corporation

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African Petroleum Corporation

Ophir farm-down deal complete

PSC completed

Oil & gas

18 March 2016

Price

NOK2.54

Market cap

NOK272m

NOK8.5/US$

Net cash ($m) at 31 December 2015 (excludes $12.6m restricted cash)

0.6

Shares in issue

107m

Free float

51%

Code

APCL

Primary exchange

Oslo Axess

Secondary exchange

Frankfurt Open
Exchange

Share price performance

%

1m

3m

12m

Abs

52.1

149.0

(27.4)

Rel (local)

43.5

153.8

(20.8)

52-week high/low

NOK4.2

NOK0.96

Business description

African Petroleum is an Oslo-listed, pure-play explorer with high working interests in 10 offshore licences across five West African countries. The company is in discussions to farm down its blocks to fund drilling in the coming years.

Next events

Further farm-downs

2016

CI-513 well

By end 2017

Analysts

Will Forbes

+44 (0)20 3077 5749

Ian McLelland

+44 (0)20 3077 5756

African Petroleum is a research client of Edison Investment Research Limited

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.

Year
end

Revenue
($m)

PBT*
($m)

Operating cash
flow ($m)

Capex
($m)

Net (debt)/cash
($m)

12/14

5.6

(42.2)

(14.8)

(13.8)

3.9

12/15

0.5

(14.0)

(12.9)

(4.2)

0.2

12/16e

0.0

(10.5)

(9.4)

14.9

5.6

12/17e

0.0

(14.4)

(9.4)

(99.6)

(107.4)

Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Capex/investments in 2016 include assumed receipt of $16.9m from farm-down deal with Ophir. Capex in 2017 assumes APCL’s net requirement for three wells (at current working interests).

Ophir joins APCL in Côte d’Ivoire

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.

Focus shifts to other block deals

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.

Valuation: Waiting on a well for RENAV

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.

Exhibit 1: Financial summary

 

 

$'000s

2012

2013

2014

2015

2016e

2017e

Dec

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

3,911

2,794

5,623

455

0

0

Cost of Sales

0

0

0

0

0

0

Gross Profit

3,911

2,794

5,623

455

0

0

EBITDA

 

 

(39,132)

(86,247)

(41,259)

(13,649)

(9,400)

(9,400)

Operating Profit (before amort. and except.)

(40,426)

(87,946)

(42,275)

(14,105)

(10,400)

(10,400)

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

FX gains (losses)

(3,652)

(555)

38

4,629

0

0

Operating Profit

(44,077)

(88,501)

(42,237)

(9,476)

(10,400)

(10,400)

Net Interest

(6)

(284)

73

105

(92)

(4,046)

Profit Before Tax (norm)

 

(40,432)

(88,230)

(42,203)

(14,000)

(10,492)

(14,446)

Profit Before Tax (FRS 3)

 

(44,083)

(88,785)

(42,165)

(9,371)

(10,492)

(14,446)

Tax

0

0

0

0

0

0

Profit After Tax (norm)

(44,083)

(88,785)

(42,165)

(9,371)

(10,492)

(14,446)

Profit After Tax (FRS 3)

(44,083)

(88,785)

(42,165)

(9,371)

(10,492)

(14,446)

End of Period Shares Outstanding (m)

575.9

575.9

652.0

106.6

106.6

106.6

EPS - as reported (cents)

 

(2.4)

(5.2)

(6.5)

(16.9)

(9.8)

(13.5)

EPS - diluted as reported (cents)

 

(2.4)

(5.2)

(6.5)

(16.9)

(9.8)

(13.5)

EPS - (IFRS) (cents)

 

 

(2.4)

(5.2)

(6.5)

(16.9)

(9.8)

(13.5)

Dividend per share

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

384,316

406,783

397,904

51,341

52,341

150,891

Intangible Assets

354,823

403,625

396,497

51,331

52,331

140,926

Tangible Assets

6,993

3,158

1,407

10

10

9,965

Investments

22,500

0

0

0

0

0

Current Assets

 

 

129,522

27,472

21,032

15,827

21,235

15,219

Stocks

0

0

0

279

279

279

Debtors

16,506

6,218

3,426

319

319

319

Cash

52,599

7,914

3,869

608

6,016

0

Other

60,417

13,340

13,737

14,621

14,621

14,621

Current Liabilities

 

 

(25,685)

(30,893)

(32,876)

(38,196)

(38,196)

(38,196)

Creditors

(25,685)

(30,893)

(32,876)

(37,749)

(37,749)

(37,749)

Short term borrowings

0

0

0

(447)

(447)

(447)

Long Term Liabilities

 

 

0

0

0

0

0

(106,980)

Long term borrowings

0

0

0

0

0

(106,980)

Other long term liabilities

0

0

0

0

0

0

Net Assets

 

 

488,153

403,362

386,059

28,972

35,380

20,934

CASH FLOW

Operating Cash Flow

 

 

(21,035)

(30,784)

(14,786)

(12,857)

(9,400)

(9,400)

Net Interest

(6)

(284)

73

105

(92)

(4,046)

Tax

0

0

0

0

0

0

Capex

(214,596)

(13,565)

(13,758)

(4,215)

14,900

(99,550)

Acquisitions/disposals

0

0

0

0

0

0

Financing

86,513

0

24,680

13,857

0

0

Dividends

0

0

0

0

0

0

Net Cash Flow

(149,124)

(44,633)

(3,792)

(3,110)

5,408

(112,996)

Opening net debt/(cash)

 

(204,529)

(52,599)

(7,914)

(3,869)

(161)

(5,569)

Fx gains/losses

(2,806)

(51)

(254)

(152)

0

0

Other

(0)

0

(0)

(447)

0

0

Closing net debt/(cash)

 

(52,599)

(7,914)

(3,869)

(161)

(5,569)

107,427

Source: Edison Investment Research, company accounts. Note: We assign the $16.9m cash receipts to capex/investments line here.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Smiths Group — Update 16 March 2016

Smiths Group

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