Excerpt/Malcolm Shaw-Hydra Capital Africa Oil (AOI.TO, last at $3.15)
I still own AOI. It’s a great way to play Brent oil prices and the company spits out a lot of free cash (and will spit out more as its Prime subsidiary reaches its debt targets). AOI has additional potential at its offshore Nigerian assets, but what I’m really there for is the exposure to Total’s Venus oil discovery, offshore Namibia. One of Total’s partners in that discovery is a very happy junior explorer called Impact Oil and Gas, which holds a 20% interest in what could be one of the largest offshore oil finds in recent memory if you believe the industry papers (and an 18.9% interest in an adjacent block). AOI owns 31.1% of Impact, giving it an indirect 6.2% interest in the Venus discovery where an appraisal drilling and testing program is currently underway (AOI also has an indirect 5.9% interest through its Impact ownership in an adjacent block where an exploration well, Nara-1X, is currently drilling). I’m not sure what the market thinks it is pricing in for Venus and the associated upside at this point, but my thinking here is that AOI is going to get a nice lift when Total starts saying more nice things about Venus. At that point I’ll re-evaluate, but for now, I like this as a way to play Brent oil with a free call option on M&A and discovery, with a fortress balance sheet to boot.