I believe the Songo Songo pipeline was subsidised by the Tanzania government and the world bank...
Part of the deal was for a guaranteed off take of "protected gas" who's pricing structure is set on a gradually rising scale, currently in the US$2.16 range.
The protected gas is bought on a take or pay basis up to about 34mmcf/d, or there about as I understand it.
I am going by memory here, so don't shoot me.
Anyway...these contracts are set and being fulfilled...there will be no more low-ball gas contracts.
All other gas beyond this, including the future production from KEY will be at what ever price they can obtain via individual contract, currently between US$7/mmcf - US$11.50/mcf.
Orca who own the Songo Songo production are averaging about US$3.20 or so, increasing more and more as their non "protected gas" sales steadily increase.
The initial development of Songo Songo was really only concerned with immediate contract demand, as such surplus gas has only recently started to find a home.
My understanding is that the owners of the pipeline (Songas?) will charge 17% for use of the infrastructure, I am not sure however if their is an additional processing fee above this?
To be safe, if we assume a total of say 30% (17% + 13%)costs for pipeline and infrastructure use, the remaining 70% represents cash-flow to the Kiliwani JV.
I assume of this cash-flow, the Tanzanian government will take 30% or so after JV costs (well head costs, etc 2%?), leaving the JV with a likely net profit line (after production costs) of some 47.6% of what ever comes out of the ground.
KN-1 achieved 40mmcf/d stabilised flow with 1 barrel of condensate per 1mmcf, but will likely be higher in full production. I base this on the nearby SS-10 well, which interestingly also achieved 40mmcf/d stabilised flow rates on initially testing, but 55mmcf/d on optimum production.
Given the field similarities, I think it is safe to assume KN-1 can achieve 50mmcf/d in the initial years.
Songo Songo pressure declines are typically 1% per years...it might be safe to assume Kiliwani will be slightly quicker given a likely smaller field, but then again, with fewer wells ,ay well achieve very similar decline rates.
Regardless, it is probably safe to assume relatively low production declines for at least the first 3-5 years?
So...what does the Kiliwani JV get?
Assume 50mmc/d (gross $7/mcf) = $350,000/d Assume 50 barrels of condensate per day (gross $90 barrel) = $4,500/d
Must remember, these are perfect world numbers...first they need to secure a decent price for the gas sales, then they need to secure off takes.
Potential upside via large field and new finds suggests a field life of 15 years plus is likely, so a PE of 10 is probably a little light on.
Importantly, this is just for one well, in one field, in one lease in Tanzania!
I have made no allowance for cash from existing reserves or as a result of options conversion (about 17cps), nor have I included the upgraded value of their entire Tanzanian play, particularly the new 50% operator position in Songo Songo West...nor indeed Italy, Namibia, Suriname...or anything else, including significant entity value given the calibre of those at the helm.
The current market turmoil is throwing a few of these sorts of bargains up of late....our job is to simply recognise them, move in...then wait for he market to catch up.
Not hard.
lol
Cheers!
KEY Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)