Align Research - Anglo African Oil & Gas - Initiation of Coverage

Anglo African Oil & Gas - Initiation of Coverage

Highly profitable small cap O&G play with present stock price underpinned by current activities and exploration potential offering further upside

Anglo African Oil & Gas (AAOG) joined AIM in March 2017 and subsequently acquired a 56% stake in the Tilapia Field in the Republic of the Congo for US$5 million. Multiple discoveries have been confirmed from the TLP-103C well in the R2 and Mengo reservoirs and now the well is being drilled deeper.

- Mengo discovery and R1/R2 look set to boost production to 750 bopd

A 44m oil column in the Mengo has been confirmed - nearby fields produce 500 bopd per well with stimulation. Experts believe that 400 bopd is achievable with water flooding from the TLP-101. Added together, this suggests a minimum of 750 bopd, making AAOG nicely cash flow positive.

- Djeno is the big prize and success here could be transformational

TLP-103C is now targeting the Djeno, a reservoir where Eni, TOTAL, CNOOC & SOCO are all producing nearby at a naturally pressurised 5,000 bopd per well. Even if AAOG miss it this time round, lessons learnt will be invaluable in drilling TLP-104, planned to be drilled back to back with TLP-103C.

- Existing infrastructure allows discoveries to go into production rapidly

AAOG is shaping up to be a profitable company, even ahead of any success in Djeno. The company benefits from having existing topside infrastructure which allows the team to quickly turn confirmed resources into production.

- Risked NPV suggests upside of more than 170%

Our conservative valuation shows the potential. We initiate coverage of AAOG with a first target price of 28.23p and a Conviction buy stance.