AOS up +400% and ready to capitalize on valuable African Oil & Gas Assets
On July 5th we ran our first story on Alberta Oilsands (‘AOS’, TSXV: AOS | PK: AOSDF) titled Alberta Oilsands’ African investments may prove to be even more profitable on a Calgary based oil company with domestic and international oil exploration assets. Just over three weeks and a whole lot of trading volume later, AOS’s share has spiked almost 400%, moving from a stagnant CAD$ 0.05/share average price for the year to CAD$ 0.16-0.17 range today. On July 26, AOS announced that the Province of Alberta would allocate “55,000 acres of Crown lands to the Regional Municipality of Wood Buffalo (Fort McMurray) under its Urban Development Sub-Region initiative (UDSR)”, cancelling AOS’s leases for its Clearwater programme. As a result, AOS (which has no debts) will be compensated for the costs of acquiring the lease, any wasted exploration and related expenditures; reclamation and 5% interest.
Overall, AOS’s compensation amounts to some CAD$ 50 million in cash plus interest, making for a very favorable cash position. AOS’s main Alberta was the Clearwater Project, just south of Fort McMurray; it had been divided in six sections, will produce bitumen using solvent steam coinjection using six well pairs. This news propped AOS to perform better than any other Canadian oil and gas sector asset last Friday, closing at CAD$ 0.14 while setting a monthly trading volume record of almost 23 million shares (the weekly average volume had been 5.9 million shares). To paraphrase a popular Hollywood movie title, last week AOS “got its groove back” after a protracted collapse that started in 2011 (when it was trading above 60 cents a share). Its active and potential shareholders may have neglected the stock for a while, but they appear to have come out from the shadows in the past week to revitalize a company that many seemed to have forsaken, reiterating our original take that it was mispriced and very much a sleeper.
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AOS started operations in 2003 by revitalizing conventional and mature oil assets through alternative and innovative drilling techniques in Manitoba, Saskatchewan and Alberta. It was only later that AOS started to diversify into the development of bitumen and oil sands, investing some CAD$ 60 million since 2007 to develop a 500 million barrel oil sands resource and specializing in smaller ‘in situ’ projects using solvent co-injection steam-assisted gravity drainage (SLP-SAGD). SAGD process has facilitated the commercial development of horizontal CSS and many SAGD projects.
Surely, AOS is not void of risks but it is in a position to outweigh them thanks to handsome cash assets and interesting international opportunities, largely focusing on Sub-Saharan Africa. AOS will be looking for exploration and development licenses in active or discovery basins in the vicinity of well recognized productive assets in order to attract investors in Canadian markets. Ideally, AOS wants to avoid initial exploration risks and investments by targeting blocks adjacent to those being developed by oil majors. Indeed, AOS has also accumulated 21 million acres of African rift basin onshore and offshore oil developments, using minimal amounts of cash, in areas adjacent to such oil majors as Total, Tullow, HRT, Beach Energy and NAMCOR. AOS is also evaluating engaging in additional exploration in Chad, Ethiopia, Niger and Burundi, the Republic of Congo, Angola and Gabon where more and more oil majors have landed to tap into the oil and gas deposits in the East of the African continent. In a sense, AOS’s strategy is to ‘piggyback’ on the well established players with plenty of resources do the bulk of the groundwork with little expenditure of its own cash or assets other than what will be needed to secure the necessary licenses and permits.
Tullow Oil has discovered oil off the coast of Kenya; several companies have found oil and gas off the coast of Mozambique; indeed, the U.S. Geological Survey estimates 253.000 billion cubic feet of gas reserves off the coast of East Africa – by comparison, Nigeria, Sub-Saharan Africa’s largest energy producer makes 186,000 billion cubic feet. Oil companies can benefit from the oil boom in Africa and the valuations of some of the oil exploration companies involved in African projects have risen over the past few years.
Tullow Oil, Africa Oil and Ophir Energy are in an ideal position to benefit from the oil boom in eastern Africa. By targeting adjacent properties, AOS will also benefit from the boom with little investment. In 2013 alone, the share price of Ophir Energy (LON: OPHR) climbed by more than 100 percent. The market value of Africa Oil (CN: AOI), which has exploration licenses in Kenya, Ethiopia and Somalia, rose 450% for the year to date. With all the uncertainty that persists in the commodity markets one thing is certain: East Africa is at the very beginning of some very promising oil and gas exploration years. The discoveries in East Africa have shown promising quality and both oil and gas deposits have proven to be very attractive; exports could begin within the next six to eight years, at which point AOS’s assets will be very valuable.