ADM Energy – 1,000bopd in plain sight following the completion of the EER deal

December 11, 2020 | Posted by

By Dr. Michael Green

There was great news for ADM Energy shareholders yesterday with the announcement that the company has finally completed the EER transaction following receipt of ministerial consent. This means that ADM can now finalise the consolidation of its interest in OML 113, offshore Nigeria. In one fell swoop, the company has effectively doubled net revenue, reserves and production. Powerful news indeed.

Receipt of ministerial consent from the Nigerian Minister of Petroleum Resources allows the completion of the transfer of a participating interest of 2.25% in OML 113 from EER (Colobos) Nigeria Ltd to ADM. The end result is that the company’s participating interest in this block will increase to around 4.9%, from its existing stake of 2.7%.

This makes for good reading as far as profits, reserves and daily production are concerned. Moving ahead, ADM will see its profit share increase from 5.0% to 9.2% and its cost bearing interests from 6.7% to 12.3%. Net 2P reserves increase to 16.4 MMboe from 8.9 MMboe, which is no surprise as this was announced back in May 2020. Net daily production is expected to rise to something like 196 bopd from 106 bopd, looking at current production. 

When this deal was announced six months ago, the total consideration was US$3 million, with US$2 million in paper at 7p per share. The remaining US$1 million was to have been in cash but since then a series of cash payments have been made plus there has been US$125,000 paid in shares at 2.4p, US$250,000 in shares at 5.5p and a US$400,000 convertible loan note issued to EER with a 10% interest charge and an 18-month life (which can be convertible into stock at 7p). So, the message coming out loud and clear is that no fresh cash needs to be raised.

A lot of magical things happen around this time of year and certainly the completion of the EER deal really serves to consolidate ADM’s position in the Aje Field,  an undoubtedly proven and really versatile oil producing asset in offshore Nigeria. Apart from the close on doubling of the company’ share of revenue, reserves and net production, there is a lot more in store because next year (2021) the joint venture partners have well-advanced plans to drill three wells. This development could see ADM’s share of daily production climb to 1,000bopd.

At the time of this latest announcement Peter Francis, Non-Executive Chairman of ADM Energy was quick to point out that. “This transaction aligns with our growth strategy and is typical of the type of deal we want to achieve to build value for ADM. We have gained a strong foothold in an oil field that we understand intimately. We have de-risked the asset through our technical expertise and working alongside high-quality partners. Having completed the transaction at a premium to our share price, we now stand to benefit by developing the field and unlocking the upside for shareholders. Building on this platform, we are focused on advancing the multiple other deals we are working on and growing our exposure to value accretive, high-quality assets”.

The back story here is that the Aje field, which is part of OML 113 block, covers an area of 835km² offshore Nigeria, which is highly impressive. This field has multiple oil, gas and gas condensate reservoirs in the Turonian, Cenomanian and Albian sandstones with five wells drilled to date. Currently, there are two producing wells, Aje-4 in the Cenomanian and Aje-5 in the Turonian. Now that the EER deal has been completed ADM ends up with net 2P reserves of 16.4mmboe compared to 8.9mmboe previously.

For those not in the know. Over the past 12 months or so the company has been transformed from that being that past stretcher case that was MX Oil. A new management team with highly impressive oil and gas credentials, led by CEO Osamede Okhomina, have successfully re-positioned ADM as an exciting oil and gas play focused on the West Africa region. The new look board have ushered in large-scale plans, which in the past investors here could have only dreamt of, to build on ADM’s existing asset base in Nigeria. They will target other investment opportunities in this region with the goal of becoming a significant mid-sized player.

Towards this goal, already the company has been partially qualified to buy assets from international oil companies (IOCs) like ExxonMobil, Chevron and Shell. In addition, there is the Nigerian government’s Marginal Oil field development programme which will see 50 marginal fields farmed out to indigenous oil companies by the multinational oil companies. ADM will be looking at deals with attractive risk reward profiles with proven reserves, a decent level of historic investment and established infrastructure along with the promise of early cash flow. Local partners are needed for these acquisition deals from the IOCs and ADM can structure itself to act as a quasi-indigenous partner to avail themselves of such deals.

It’s OK having big plans but now as investors bleat in unison – how are these deals going to be funded? ADM is an investor in a world class offshore oil and gas project which is seeking to aggressively build reserves and production with a target of building a significant portfolio of projects across Nigeria and West Africa. The strategic alliance with Trafigura looks to enable the development and financing of such energy projects in Africa, where it looks likely that Trafigura would provide ADM with conditional pre-financing of up to US$100 million for approved projects, as well as subscribe for up to US$20 million in convertible loan notes. This represents very substantial capital which ADM can use to fuel its growth.

In May 2020, we updated our coverage on ADM Energy with a Conviction Buy stance when the price was standing at 2.20p, strongly marking investors’ cards. Now with the stock at 4.90p, we are more than happy to confirm our stance as despite the move up in the share price, in our opinion, the stock still looks highly undervalued.


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