Things Hotting Up, page-80

Azinam plans to raise $60m and IPO on the Oslo stock exchange? Wow.

What’s the pre-IPO valuation? $0???

 

Before we throw any well-justified aspersions, let’s have a look at Azinam’s history and portfolio shall we?

 

Azinam’s assets in Namibia are:

PEL 30

PEL 33

PEL 34

PEL 44

PEL 45

PEL 71

 

Plus it recently acquired some open ocean in South Africa,but we’ll get to that later…

 

First let’s go through the Namibia blocks one by one while we maintain a (very rough) running total.

 

PEL 71

Azinam started its jaunt in Namibia by acquiring 10% of PEL71 back in 2012. It did this by “contributing” a 3,500km2 3D seismic survey acquired and processed by PGS. Azinam carried Chariot 100% and spent at least c$30m* in the process.

 

In 2016 Chariot acquired another 2,600km2 of 3D seismic, probably for around $20m given the sorry state of the seismic market at the time. Azinam was on the hook for 20%, so it probably paid around $4m.

 

In case anyone missed the news, Chariot drilled its second well (targeting Prospect S) on this block recently (Sep 2018) and it was dry. Hilariously, despite owning only 20% of the asset, Azinam initially attempted to portray this well as one of its own! Read the idiotic press release on Azinam’s website on Sep 28, 2018: “Azinam Limited…is pleased to announce that the Ocean Rig Poseidon has been mobilised to drill the Prospect S Well…” Hahahaha. Azinam mobilised nothing and contributed nothing other than cash. How much? Hard to say, but probably at least $4m**.

 

And now after two dry holes, the block is dead. Like the dodo…

 

Running total = $30m +$4m +$4m

 

*In 2012 the going rate for acquired and processed 3D seismic was about $10k/km2, but we like to be conservative. In 2016 prices were lower, so we rounded down a bit further.

** It is difficult to imagine that a well in such deep waters was drilled for less than $20m, which would have cost Azinam at least $4m given that it holds 20% of the block.

 

 

PEL 44 & 45

Soon after its Chariot splurge, Azinam acquired a 42.5% share in these two blocks alongside Maurel et Prom (MP). Details of the collaboration are hard to find online but we do know that the partners acquired around 6,480km of 2D and 3,150km2 of 3D seismic across the blocks. Let’s be conservative and say that the costs for acquisition and processing were $6m for the 2D and $30m for the 3D. Azinam and MP carry the other partners on the block, thus making each of them liable for 50% of the costs. Which in turn,means that Azinam blew approximately another $18m on seismic.

 

In August 2018, Exxon farmed into PEL 44, acquiring 30% and leaving Azinam with just 12.5%. No details of the commercial terms are available online, however it’s likely that Exxon didn’t pay any past costs or agree to carry Azinam in future, it simply took a piece of Azinam’s asset and agreed to pay its own way.  Azinam would have swallowed such a poor deal simply for the glory of saying “Oooooo Exxon likes our assets, Ooooooooo”.

 

However, it will be years (if ever) before Exxon agrees to drill. Especially given recent drilling failures to the north and south of PEL44. 

PEL 45 still needs 3D seismic, so it also won’t generate any value for years, if not a decade at least.

 

So, that’s another two sterile assets… Like neutered cats without redeeming features.

 

Running total = $30m +$4m +$4m + $3m + $15m

 

 

Then we get to the assets that Azinam shares with Eco and the calculations are harder to complete based on public data.

 

 

PEL 30

Azinam started out by acquiring 20% of this block from Eco and then increased its stake to 32.5% in 2015 after Tullow also farmed in. (Oooooh Tullow farmed in so it must be good! Oooooo).

 

In 2014 the partners acquired 1,100km2 of 3D seismic from PGS. Presumably they also processed the data too. We know from Eco’s website that Azinam paid $2m towards Eco’s costs and thus probably paid another $2m for its own share as well (conservatively).

 

In October 2018 Tullow dropped out of the block. How much did Tullow invest before dropping out? Probably in the order of $8-10m based on the various bits of data available online. I’ll leave you to do that research in your own time.

In any case, Eco and Azinam are now left holding the bag when it comes to drilling commitments.

 

Is anyone else likely to farm in after Tullow fled like a scalded kitten?  No. 

Wow, what a great situation for Azinam to be in!

 

Running total = $30m +$4m +$4m + $3m + $15m +$4m

 

 

PEL 33

In January 2015 Azinam increased its stake here to 30% and agreed to fund 100% of a c22,000km 2D survey, carrying both Eco and Namcor along the way. How much did such a survey cost? Hmmm. Let’s say $20m to be conservative. Why did they do it? Probably because PGS had a boat available in the vicinity.

And now, the partners have to acquire another 1,100km2 of 3Dseismic… 

 

Is it likely that anyone wants to farm in here? Hmmm.  Shallow waters, challenging 3D seismic, next door to Tullow’s and HRT’s failed wells… Let’s just say “no” for now, huh?

 

Running total = $30m +$4m +$4m + $3m + $15m +$4m +$20m

 

 

PEL 34

Here, in a fit of hubris, Azinam wanted to become the Operator for some reason. God knows why. Maybe because PEL 34 is in deep water and expensive? Huh. Along the way Azinam agreed to fund 100% of a 1,000km 2D survey and 66% of an 870km2 3D survey. Let’s call those Azinam costs $1m and $5m respectively, shall we?

 

This is a deepwater block located west of HRT’s failed wells and south-west of Tullow’s recent dry hole.

 

Azinam plans to drill on this block some time in the future, presumably after its IPO (hahahahahahaha).

 

Running total = $30m +$4m +$4m + $3m + $15m +$4m +$20m + $1m+ $5m = $86m

 

 

So that’s all of Azinam’s assets in Namibia and so far we can begin to suspect that it might just have spent at least $86m on subsurface work alone.  Plus JOA costs, plus license costs, plus G&A, offices, reservoir studies, etc, etc.  Plus flying Erik Tiller’s fat Halloween-pumpkin head around the world in first-class because it won’t fit anywhere else. If Azinam’s total spend to date is less than $90m I’ll eat Donald Trump’s MAGA hat.

 

If you are an investor and you are considering putting money into Azinam’s alleged IPO, then you need help. A lot of help. 

 

Here’s why, in summary:

 

Azinam is going to tell you that it has the largest acreage ownership in Namibia and that it has spent c$70-90m on seismic and exploration since it acquired its assets… But so what?

 

Think about this:

Azinam has 6 Namibian assets.

 

Three of those assets (PEL 30, 33, 34) are shared with Eco Atlantic. The great thing about Eco is that it is already public. And it has assets in Guyana where Exxon has made discovery after discovery and where Total recently exercised its back-in option before Gil Holzman could even pick up the phone to enquire about Total’s intentions. A recent broker’s note from Hannam (again, use google and find it yourself) said that Eco’s valuation today (call it $85m USD) only reflects its Guyana assets and that investors in Eco get Namibia for free. FOR FREE. Why would any sensible investor pay hard cash to gain exposure to PEL 30, 33, 34 via Azinam when they can get access to the same assets via Eco for free?

 

Ahh but Azinam has other assets, you say.

 

Cool. So let’s consider PEL 71 where Chariot has so far drilled two dry holes. Two. Dry. Expensive. Holes. After acquiring more than $50m dollars worth of 3D seismic….  What is PEL 71 worth? Well Chariot (LSE:CHAR) is currently worth c£10m and that’s only because the company has c£10m in cash, thus valuing its Namibia assets at, well, ZERO!  So again, why would anyone pay hard cash to gain exposure to PEL 71 via Azinam when they can get the same access via Chariot for free? FOR FREE!

 

Fine, you say, fine! 

 

But didn’t Exxon recently farm-in to PEL 44? Surely that means something!

Well, let’s think about PEL 44 shall we?

1 – It is directly north of PEL 71 where Chariot drilled two dry holes.

2 – It is directly south of the block in which HRT also drilled two dry holes. And,

3 – It is also south (and on trend with) the block where Tullow just drilled a dry hole (Cormorant), which was so discouraging that it caused Tullow to effectively drop out of Namibia.

So how do we feel about PEL 44? Well, not great unless “we”are an idiot.

 

The only upside remaining is PEL 45 where so far the partners have only acquired 2D seismic and will struggle to acquire 3D in future due to the water depths involved. (3D seismic is difficult in shallow waters because the enormous boat/streamer configurations involved don’t have enough space to turn around before getting beached like lost whales). If Chariot’s well (“Prospect S”, yeah right, like it needed a James Bond code name…) had been successful then PEL 45 would be hotter right now than Beyonce’s butt. Unfortunately, Prospect S was yet another dud, so the butt in question more likely belongs to a frozen penguin.

 

What’s the summary from all of this? Well:

If you like Walvis bay then you can get exposure to PEL 30,33, 34 for free by investing in Eco Atlantic.

If you like PEL 71 then again, you can get exposure for free by investing in Chariot.

If you like PEL 44 and 45 then you are an idiot who can’t read a map. Put the chequebook down and take up knitting before it’s too late.

 

In any case, if you choose to invest in Namibia via Azinam then you are an idiot.

 

 

ADDITIONAL NOTES:

Some potential investors will also enquire about the South Africa assets and about Azinam’s management. Well… let’s consider these shall we?

 

SOUTH AFRICA:

Azinam recently acquired c50% in blocks 3B/4B in the Orange basin in South Africa. From a company called Ricocure that no one has ever heard of. And I mean no one. Ever. These are the same blocks that BHP Billiton once held. In fact, BHP acquired 10,000km2 of 3D seismic over these blocks, which certainly cost in the region of $70-100m. Yes, that’s right. Up to $100m US dollars. And then…after spending such an obscene amount…BHP relinquished said blocks. Do you think they just did this on a whim? No. BHP is big, but wasting $100m is not something they do everyday. Why would Azinam want blocks relinquished by BHP??? In South Africa???  Well…to give the illusion of “diversification” of course.  Because Azinam is not just a one-basin-one-country company. Oh no, it has spread out massively into…well…the neighbouring country.

 

MANAGEMENT:

Azinam has some lumpy Irish adolescent called Daniel McKeown as its MD. If you’re struggling to visualise him, imagine a dugong in a suit.The boy was a baby banker for most of his career and now he pops up as the MD of an oil exploration company. His knowledge of geology, geophysics, drilling, etc, - basically anything to do with the industry in which he’s suddenly woken up – is essentially zero. He’ll tell you that Azinam plans to raise $60m and list in Oslo but he has no idea about the assets that underpin the company.

 

And then there is David Sturt. I mean, look at the guy’s photo. He looks stunned by the very idea that anyone wants to take his picture without vomiting.  Although he’s been on the board of multiple companies, all of them were based in Ukraine and Kazakhstan and Russia. I guess that’s slightly better than you’d expect from a blind, brain-dead, baby turtle, with no legs. If I was investing in Azinam, I’d feel great about a COO whose past experience spanned the most backward oil provinces on earth.

 

So if you are an investor who’s seriously thinking about sponsoring Azinam’s alleged $60m IPO, then please, shake your head and see if it rattles.