Why African Oil Is the Next Ring of Fire

Ophir Energy has discovered and de-risked nearly 6 billion barrels of oil equivalent on over 100,000 square kilometers on and off the coasts of Ghana, Equatorial Guinea, Gabon, Kenya, and Tanzania. It is talking with shareholders on December 16 about its proposed sale of a 20% interest in Tanzanian gas assets to Singapore-owned Pavilion Energy for $1.288 billion.

India's GAIL (NASDAQOTH: GAILF  ) is in talks for another 10%-30% stake. With Pavilion's deal already struck, GAIL appears to be waiting for world oil prices to dip a little before signing.

What about Ophir
Ophir Energy has a nearly $2 billion market capitalization across assets totaling almost 6 billion barrels of oil equivalent, bboe. Since July 2013, the company has traded at a discount to the FTSE Oil and Gas Index. It was successful in placing over 30 million shares to raise over $242 million during 2012 and $838 million by March 2013 to develop Tanzanian gas and Equatorial Guinea oil and gas assets and prospect more blocks.

During 2012 Ophir discovered nearly 800 million barrels of oil equivalent, or boe, at a finding cost of $0.58/boe. Ophir de-risked prospective resources totaling 4.78 billion boe, with another 1.22 billion boe in contingent resources. The next step for contingent resources is to develop them into bankable reserves. An additional 11 wells are being explored over the next 15 months.

Ophir is headquartered in London with offices and sites throughout Africa. Lakhshmi Mittal, Chairman and CEO of ArcelorMittal, as well as a Goldman Sachs board member, further backed its listing on the London Stock Exchange in 2011. Nick Cooper, geologist and former Goldman Sachs VP, is now at the helm.

Tanzanian gas find
Ophir appraised the Jodari gas field in East Pande Tanzania to have a reservoir that could yield 3.4 trillion cubic feet, Tcf, of gas (approximately 646 million boe) at over 1,000 meters depth. It also importantly found that high angle drilling was feasible. This means that development costs can be contained and reliability of production can be reasonably assured.

Tanzanian LNG is poised to serve the Pacific basin where an estimated 70% of global demand will be located by 2020. There are already 15 Tcf recoverable resources located with an estimated 70 Tcf reservoir untapped. The Jodari field alone over 10 years could yield 180,000 boe per day.

In Tanzania, Ophir has partnered with BG Group (NASDAQOTH: BRGYY  ) , currently the largest supplier of LNG to the U.S. BG has over 12 Tcf of net proven reserves as of the end of 2012. At a $100/barrel that is over $240 billion.

Ophir future?
The typical odds of building out near commercial grade hydrocarbon reserves are roughly 4 to 1 against. At that rate, the 20% stake $1.288 billion payday for Ophir requires about $300 million in discovery capital at $0.58/barrel and across 646 million boe. The payday will have seemed to return over four times the spend.

Ophir is about to test a large gas target (> 10 Tcf) in the Mlinzi Mbali-1 block in the Northern Tanzanian Coastal Basin. We will all watch and see what comes up from about 5,000 meters of drilling in 50 days.

It pays to have geologists at the helm calling and diversifying the shots. Ophir has the backing, the location, and the will to beat the odds. The $100/barrel market helps a bit too.

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