some understanding, page-3

Shares in Aminex ticked up last week on news of a positive well test on its Kiliwani North-1 gas strike in Tanzania. The well flowed 40 million cubic feet of gas per day, equivalent to 6,700 barrels of oil per day, beating company expectations. The gas was clean, maintained a strong wellhead pressure and came with around 40 barrels of condensate per day. Chairman Brian Hall described the news as an “excellent test result”.

Given this strong result, the market reaction was a little muted, with the shares gaining four pence on the news. This is a share price that has jumped around over the past six months, shadowing the newsflow from the company’s drilling campaign in Tanzania. It is therefore a little disappointing for investors that the market has not jumped more enthusiastically on news of a commercial gas find in Tanzania, close to existing production infrastructure and in an area where Aminex has established a firm footprint.

Only last week the company announced it had signed up for a 50 per cent interest in the Songo Songo West PSA. The new award means that Aminex licences now sandwich the producing Songo Songo gas field, with the Nyuni licence, home to Kiliwani North-1, lying to the east and the new PSA, Songo Songo West, lying to the west. The new shallow water licence, close to the coast, is thought to hold a number of large quality prospects and work here will aid Aminex’s geological understanding of this under-explored yet gas-producing region.

Aminex will now get busy appraising Kiliwani North-1 in a bid to quickly monetize the new find, which carried a pre-drill estimate of 100 bcf. It helps that the field lies close to the Songo Songo field and associated infrastructure, which includes a pipeline to the capital Dar es Salaam. What’s more there are other prospects on the 1,300 sq km Nyuni licence that, if successfully drilled, could mark the beginnings of an interesting cluster development.

These prospects include a possible extension of the Kiliwani North structure, Kiliwani South, which carries a P50 estimate of more than 200 bcf. And further north there are two prospects, to the east and west of the Nyuni-1 well of 2003/4, which together could hold more than 700 bcf of gas. These identified prospects, plus the potential in the new Songo Songo West licence, add up to a busy drilling inventory for the London- and Dublin-listed firm, which has been pushing the East Africa exploration story since 2002.

Aminex has had its fair share of ups and downs along the way, including the over-budget Nyuni-1 well, which pushed the company to the brink, and the Kiliwani-1 well of earlier this year, which the geologists rated a dead cert given its proximity to Songo Songo but which still came in dry. Speaking at oilbarrel.com’s April 2008 conference, Hall admitted that Kiliwani-1 was a crushing blow for the company and led to a “fairly grim winter” for the Aminex team, particularly as the geologists didn’t like the look of the next prospect, Kiliwani North-1.

The company and its shareholders were delighted, therefore, when the well found a 60 metre gas column, thicker than expected. That the well then went on to test a very respectable 40 million cubic feet per day is just the icing on the cake. As always with gas discoveries, the real celebration comes when all the pieces of the jigsaw to monetize the reserves are in place, including gas sales agreements, access to infrastructure (there is limited spare capacity in the 105 million cf/d Songas pipeline and the Songo Songo partners are looking at plans to increase the line’s capacity as additional gas processing trains on Songo Songo Island come onstream from 2009) not to mention financing to fund the development work.

The real prize in Tanzania, however, is to strike black gold on this under-explored coast. Although there is the possibility of oil in the Nyuni licence, it is clear that Aminex is really excited by its Ruvuma licence on the southern border with Mozambique. This vast unexplored 12,000 sq km licence sits across the Ruvuma River from Anadarko’s acreage in Mozambique. At the oilbarrel.com conference in April, Brian Hall “borrowed” a slide from his US neighbour, which revealed that Anadarko expects big things of this area: the slide likened the Ruvuma Basin geology to the Gulf of Mexico and Niger Delta, highlighted over 100 leads identified on 2D data and gave a resource potential of more than 3 billion barrels of oil equivalent. Aminex’s first well could spud here in the next 12 months and will be eagerly awaited by investors.

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