No. of Recommendations: 33
Exploration and Gas Monetisation in East Africa

Offshore East Africa is a very hot address right now, with big oil moving into the region following significant discoveries of gas in Mozambique and Tanzania by Anadarko/Cove, BG Group, Eni, Statoil etc. Anadarko's giant Mozambique finds are already the subject of advanced plans for a multi-train LNG development, with FID anticipated by end-2013 and first production 2018. Others will undoubtedly follow as further finds reveal the extent of resources in this region.

Wentworth Resources (AiM listed WRL) and Oslo listed (OSE:WRL) qualifies, by virtue of its dual listing, as an ISA investment, and owns the following assets:

1. 31.94% production interest in the Tanzania Mnazi Bay Block, immediately inboard of the BG Group Block, which in turn is immediately north of Anadarko's Mozambique Offshore Rovuma Area 1 Block.

2. 11.59% production interest in the Mozambique Onshore Rovuma Block, where the Mecupa well found HCs in Miocene sands in 2009. The 2012/13 work programme includes acquisition of new 2D seismic, and at least one well to be drilled in 2013.

Net P50 prospective recoverable resources 154 BCF.

3. 100% of the Mtwara Energy Project(MEP) 10MW power station, the sale of which, to Tanzanian state electricity supplier Tanesco for $13.5m, has just been announced.

Following what was effectively a swap with Cove Energy of Wentworth's 4.95% royalty interest in Cove's Mozambique Area 1 profit petroleum for Cove's 16.38% production interest in Mnazi Bay, and the subsequent exercise of pre-emption rights by Mnazi Bay Operator Maurel et Prom, Wentworth will hold (subject to completion) 31.94% equity in Mnazi Bay.

The deal with Cove placed a value of $38.8m on the Mnazi Bay asset, accordingly M&P will, upon completion, pay to Wentworth the pro-rata amount relating to their pre-emption percentage.

The Mnazi Bay licence is situated in the Ruvuma Basin and is both coastal and shallow water. This coastal margin contains smaller structures than are found when the shelf drops off to much deeper water, where big oil is concentrating, nevertheless, Wentworth's net contingent resources and net prospective resources are very considerable in relation to the company's market cap, with the potential to prove up around 1 TCF.

Four Tertiary-aged discovery wells (one in shallow water, three on land) have already been drilled on the Mnazi Bay licence - one is producing, three are completed and shut-in;

MB-1, Miocene discovery in 1982 flowed 13mmcfd, now supplying a minimal nearly 2mmcfd to Mtwara Power Plant via a 27km pipeline.
MB-2, MB-3, MS-1X gas discoveries.

Resource numbers, based on the assumed 31.94% interest are:

P90 net contingent resources : 87 BCF (per RPS, based on 75% recovery factor)
P50 net contingent resources : 213 BCF (based on 75% RF)
P90 net prospective resources: 362 BCF (based on 69% RF)
P50 net prospective recoverable resources: 622 BCF (based on 69% RF)

The schedule for 2012 is to drill one exploration well and, dependent upon the result, either an appraisal well or another exploration well, also workovers of the existing three discovery wells. The objective is to obtain independent certification of resources as soon as possible (the CPR, by RPS Energy, considered current production operations to be at the initial pre-development stage, thus reserves cannot be classified until several outstanding contingencies are satisfied for commercial development).

The first well, Ziwani-1 (targeting Miocene and Oligocene sands), is currently drilling, with TD expected mid-March. Wentworth is paying only 12% of the cost of this well, which is targeting 375 BCF net P50 prospective resources (per RPS), ie 60% of the remaining prospective number for the block, and the CoS is 27%.

Wentworth's current market cap is £73.6m (80.5m shares @ 91.5p).

Wentworth's shares have undergone a substantial re-rating recently, I believe for the following reasons:

1. Increasing number of giant gas discoveries offshore Tanzania and Mozambique, sparking the interest in, and consequent buying of, positions by big oil in the region.

2. Refocusing of Wentworth's portfolio - by selling Mtwara and increasing exposure to Mnazi Bay, the company is now focused on drilling out their prospective resources and workovers of their shut-in discovery wells with a view to obtaining independent certification of reserves.

3. The sale of the Area 1 royalty interest to Cove, the subsequent realisation of cash via M&P pre-emption, and the sale to Tanesco of the Mtwara Energy Project, leaves Wentworth fully funded beyond 2012 to pursue the drilling programme. I estimate Wentworth's cash position to be in the region of $40m after completion of the above deals, equivalent to 31p/share.

4. Importantly, the above asset sales remove the risk of a dilutive equity capital raising in 2012, and probably well into 2013, a factor which can otherwise weigh heavily on the share prices of smaller AiM companies.

Gas Monetisation - Routes to Market

1. Tanesco is fast-tracking a pipeline from Mtwara to Dar es Salaam, with completion anticipated in 2013. The pipeline will provide potential for Mnazi Bay supply in excess of 200 mmcfd, and Wentworth is currently negotiating a Gas Sales Agreement with the Government.

2. An alternative would be the building of a large scale gas-to-petrochemicals project, subject to sufficient reserves certification and FID (I imagine the company would farm down this development).

I guess there's a third gas monetisation route, namely via sale of Wentworth Resources plc, given the proximity to major LNG developments a certainty in 2-3 years' time, and provided enough resources are established.


I'm not very good at this at all, so with a little help from a friend:

1mmboe=6000mcf £/$ = $1.55 Shares in issue: 80.5m

P50 Resources mmboe Risked NPV10 Risked Value U/R Value
----------------------- --- ----- ------------
Contingent Prospective % $/boe $m p/share $m p/share

Mnazi Bay 35.5 80 3.00 85.2 68.3 106.5 85.3
Mnazi Bay 103.5 8 1.00 8.3 6.6 103.5 82.9
Mozambique 25.7 8 1.00 2.1 1.6 25.7 20.6
Cash 40.0 32.0 40.0 32.0

Total 108.5 220.8

(grateful thanks to JPGH)

Brokers have produced valuations using only the base case, predicated on the P90 net contingent resource of 87 BCF and the cash in hand following the completion of asset sales. With gas sales agreements for the Mtwara - Dar es Salaam pipeline route to market yet to be finalised, brokers are placing the following NPV10 values on P90:

Investec (23.2.12) $5.88/boe
First Energy Capital $5.37/boe

Assuming NPV10, say, of $5.50/boe, 87 BCF/6000 = 14.5mmboe x $5.50 = $79.7m /$1.55 forex = £51.5m /80.5m shares = 63.9p.
Add $40m cash/$1.55/80.5m shares = 32.0p

Total base case 95.9p.

The above does not take into account Mnazi Bay P50 contingent resources or any prospective resources, including those being drilled for at ziwani-1, nor the prospective resources in the Mozambique Rovuma Onshore Block.

Another valuation pointer is that the Cove sale of 16.38% of Mnazi Bay to Wentworth for $38.8m equates to $75.6m net to Wentworth's enlarged equity of 31.94%. Add cash of $40m, and "valuation" by this method yields $115.6m /$1.55 /80.5m shares = 92.5p/share, thus supportive of the above base case.

Clearly, the result of gas sales agreement negotiations is vital for accurately assessing value, however the fact that very large gas discoveries are being made in neighbouring blocks, LNG development in the region looks to be a certainty, adding value to Wentworth's soon-to-be upgraded contingent resources.

A successful outcome for the "imminent" result at ziwani-1, targeting 622 BCF net P50 prospective, could be significant.

Here's the latest Corporate Presentation - February 2012:

I hold Wentworth shares in my ISA. On AiM, the shares are illiquid, and the spread is large (currently 88p-95p), but I have been able to buy just over mid-price. The alternative is to buy through Oslo, which is a much more liquid market, but I found that, after local charges, I was able to buy at a similar net price in London.

Directors and senior management are well represented on the share register, with ~22%.
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