AZONTO PETROLEUM LTD PETRCJLEUM LTD
zonto Petroleum (AZO:AIM), the exploration and production (E&P)
being the beneficiaries of a new long term incentive pian (LTIP) that has been approved by shareholders.
The company's core strategy is
company focused o n West Africa,
could be described as an eight-year old start up. Renamed in November
2013, it was in its previous form
called Rialto Energy, a company that, after much initial promise, endured a difficult 2012 to 2013.
With a new board an d management team now in piace, the company has a stable platform
from which to build on, particularly following the partnership with Vito! E&P in Cote d'Ivoire and Ghana, concluded in November 2013. Core shareholders include not only Vito! but also the International Finance Corporation, part of the World Bank group, an d a number of UK blue
chip financial institutions.
The current management team is deeply experienced in Africa and includes Rob Shepherd as chief executive officer (CEO), previously finance director of Dominion Petroleum that was sold in 2012 to Ophir Energy (OPHR); Andrew Rose as chief financial officer (CFO), who was finance director
of Burren Energy that was sol d in
2008 to ENI and Jay Smulders as technical director, who recently joined the company from Tullow Oil (TLW).
NEW STRATEGY
The management team is highly motivated to deliver shareholder value having collectively invested over $800,000 in the company's equity- more than received in salaries over the same period o n a post-tax basis - and, together with the other members of the team,
as follows:
• Focus on shallow water an d onshore appraisal l development opportunities. Emphasis on discovered hydrocarbons with some exploration optionality. This
gives a more balanced risk l reward profile fora small company, albeit with a key need to ensure costs and schedules are managed carefully and should lead to faster conversion to cash flow.
• Regional focus on Sub Saharan Africa, initially on West Africa. Geographical focus enables the company to develop
key relationships, benefiting from politica! connectivity and in time logistical synergies.
• Balanced portfolio of both oil and gas. Domesti c gas is
un der increasing politica!focus in Africa generally given the materia! economie benefits of replacing
other expensive fuels. The company can benefit from a higher profile
in certain countries than would ordinarily be the case with the potential to negotiate advantageous terms. Parallel focus on oil and other hydrocarbon liquids provides not only upside but also balance against the risks inherent in gas projects.
• Become a 'partner of choice' with key regional players. With
a first rate team now in piace,
and working hard at relationships with partners such as Vito!, other industry players and also !oca! companies, the company can create solid partnerships that give it a robust platform o n which to build its business. It also offers
in the block merited further analysis and consequently applied for, and received, a six month extension
from the government to enable the formatio n of a new partnership to be pursued.
Accordingly, the company is currently engaged in a farm out process that it hopes to conclude successfully in the coming months, although that of course cannot
be assured.
the opportunity to tap in to their greater financial resources when appropriate.
• Tight cost contro!. The new management team has reduced the ongoing generai an d administrative expenses by approximately half o n an annualised basis and, given the alignment with shareholders, will continue to look for further savings where possible.
The com pany's initial project is to develop, via its joint venture with Vito!("Vioco Petroleum") the Gazelle gas field in Cote d'Ivoire. Gazelle is a discovery that was
made in 1977 in between 30 and 50
metres of shallow water some 50 kilometres to the south east of the capitai, Abidjan. Gross resources have been independently certified
at around 45 billion cubie feet o n a proven contingent basis and around
90 billion cubie feet on a proven plus
probable contingent basis.
Total development costs to first gas are estimated to be some $200 million of which $50 million is being provided by Vito!as a development loan. The balance is anticipated to be provided through a debt facility by a syndicate of banks.
Vioco has recently submitted
a revised fie!d development pian an d is working towards project sanction, which is targeted for
year-end. Once the project has been
sanctioned, detailed engineering and construction is anticipated to take some 14 to 16 months, meaning that first gas is anticipated in the first half of 2016.
In anticipation of contracting a jackup rig to drill the development wells on Gazelle during the second half of 2015, Vioco is currently reviewing the various shallow
water prospects contained in Block CI-202. The objective is to select a preferred target for drilling during
the same period in arder to meet the
exploration well commitment under the terms of the production sharing agreement.
The com pany's other current
asset is an interest in the Offshore Accra block in Ghana that covers an area of 2,000 square kilometres. An initial well was drilled in 2013 which was un commerciai and as a result
of which, a number of the- then
joint venture partners elected to withdraw from the block. However Azonto plus o ne of the joint venture partners, Afex International, felt the additional prospectivity identified
Outside of the current assets in Cote d'Ivoire and Ghana, the company is actively pursuing new opportunities in line with the strategy outlined earlier- a number have been identified that are currently being progressed. New ventures will require additional funding but the company remains confident that,
for the right opportunities, current and future shareholders and debt providers will be supportive.
The opportunity at han d in West
Africa an d beyond is clear- many of the economies are growing
at double digit rates that creates
positive forces in two ways. Firstly, host governments are keen to see domestic gas opportunities being pursued to fuel their energy-hungry economies and secondly they want marginai oil assets to be developed as existing production declines.
The Azonto team has a balanced skill set covering technical, legai, commerciai and financial, and above ali, demonstrable experience in delivering value from small cap
companies. The company is looking to stand out from the crowd going forwards as it builds a portfolio of high quality assets in a measured and risk-balanced way.
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