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Solo Oil: Pipeline access and gas sales terms will be key to a farm-out

Securing access to a new pipeline and defining the terms of future gas sales can be the breakthrough in the current impasse in farm out talks, chief executvie Neil Ritson reveals.

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Proving the commercial merits of the Ntorya discovery in Tanzania is the key to overcoming the current impasse in farm-out talks, according to Solo Oil (LON:SOLO) chief executive Neil Ritson.

Securing access to a new pipeline and defining the terms of future gas sales can be the breakthrough, he revealed.

Solo, alongside partner, and majority stakeholder, Aminex (LON:AEX) has been working to bring in a partner to the venture, onshore Tanzania, since November.

A deal will allow the venture to move onto the next phase of operations that will comprise a seismic programme followed by more drilling.

Investors had initially hoped such a deal would already be done and that work would soon be underway, and the respective shares have been under pressure in recent months.

The coastal region’s nascent domestic gas industry, spurred by the ongoing construction of a major pipeline to Tanzania’s capital Dar es Salaam, makes early production a real possibility and provides a potential catalyst in the farm-out negotiations.

The pipeline, which is due to be ready by mid-2014, takes a route a mere 12 kilometres from the Ntorya discovery so could unlock the value of the discovery in relatively short order.

Ntorya would have ‘favourable’ economics, Solo says, assuming it can be hooked into the new gas network and that its gas can be sold on similar terms to those being offered to other firms in the region.

Proving these two points will see the crucial farm-out deal move forward, according to Ritson.

Speaking with Proactive Investors, the Solo chief said: “People are saying ‘yes you’ve got gas, but what price are you going to get for the gas when you sell it?’

“If we can deliver something quickly on that then I think we’ll have dealt with the barriers that people have raised to concluding a farm out.

“I think we can do that, because it is a very live topic in the country at the moment as the pipeline is being constructed.

“If you’re already in the country and you know what’s going on, you can take a view on it. But, if you’re entering the country for the first time, as are the two principle parties we’re talking to, there are some key things that you want to be sure on.

“And this [confirmation] is what we really need to provide to people at this stage.

“We want to have something from the Tanzanian government that says Ntorya gas will go to this pipeline and it will get a certain range of price. And I think that’s possible.”

Ritson believes that the venture partners will see more traction in the coming weeks, once the summer months are over and attentions re-focus in September.

It is now around 10 months since the farm-out process began. And although some investors may be disappointed by the lack of progress and that the initial timetable has overrun, Ritson insists that, by broad industry standards at least, it has not been too drawn out.

“[The farm-out] is on everybody’s mind,” he explains.

“We had hoped that by this summer we would have a new partner in order to start shooting additional seismic that’s required on the block before drilling further wells.

“If you look at industry statistics it takes around 15 months to close a farm-out deal on an exploration venture. We’re about 10 months in, now, so we’re not that anomalous in not having yet closed anything.

“We do need to find a solution, either through a farm out or by other means, to get the seismic underway during this year otherwise we’ll start to compress the programme to 2016, when we’ve got have drilled further wells.

“It is urgent, and it is being dealt with urgently. But, you’ve got to have a buyer and a seller that can agree. We don’t have that at this point. We do, as we said this morning, have some people who are actively engaged in the process. But, it is never done until it is done.”

The partners have cleared one barrier to a deal, as raised by interested parties, when it recently amended the terms of the production sharing agreement with the Tanzanian authorities to extend the exploration period.

Ritson explains that potential partners wanted to see a ‘good window’ in which to complete any work commitments made in the farm out agreement, and as a result of the amendments that is now the case.

He also emphasised that while it is different to the huge gas discoveries offshore, in the deep waters off the Tanzanian and Mozambique coast, the onshore Ntorya project is attractive because it is a more near term opportunity.

“We really are dealing with a different group of interested parties, than those looking at the deep-water East Africa plays.

“Ntorya is cheaper, it is earlier mover and it is strategic in a different way. It is not about supplying long term LNG to the Far East, it is about producing fuel to the domestic Tanzanian market.”

Production from Ntorya is possible in around eighteen months to two years, once a farm-out is agreed, Ritson says.

“We’re not going to get early production without a second well, and we won’t be able to drill that without the additional seismic.”

 

Solo currently owns 25% of the Ruvuma PSA, which hosts Ntorya, while Aminex has the other 75%.

Quick facts: Solo Oil PLC

Price: 1.125 GBX

AIM:SOLO
Market: AIM
Market Cap: £7.28 m
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Solo Oil's Neil Ritson on Horse Hill, Ruvuma and plans to refresh the team

Neil Ritson, chairman of Solo Oil PLC (LON:SOLO), discusses with Proactive's Andrew Scott the first batch of production testing results from Horse Hill,  the decision by their partner at Ntorya, Aminex plc (LON:AEX) to farm-out two-thirds of its 75% interest in the project and the...

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