How about some LEO with that AOI?In light of the media reports and AOI market action, I've picked up a few LEO and added to my portfolio. From reading the latest news, I think we're going to bring in equiment and test the Boghal 1-1 well once it reaches target depth. I think it's more likely as they're still drilling for target depth that it's gas as of now, but it could be an additional bonus lurking deeper down. Testing will determine the commercial potential of the well.
AOI has been on the move but LEO has been sleeping. LEO has according to their website's April presentation $15 mm in cash position. On 85 mm shares, the cash should be pretty much equal to the shareprice. No premium paid for hydrocarbon discovery. I'd been wanting to increase in AOI, but because LEO hadn't moved, I decided to get in on there instead.
Using GMP's valuation for 1 boe in Block 9 at $6.67 and AOI's WI of 20% and LEO's WI of 10%, a discovery of 10 mmboe would yield 2 mmboe for AOI and 1 mmboe for LEO. t'd be 9.5 cents per share for AOI and 8 cents per share for LEO. LEO is beat up, in my opinion, because of their poor past performance and management. It looks like a significant shareholder could played part in getting the AOI/LEO deal. Seeing that Ian Gibbs was appointed on LEO's board, the ties are close to AOI. I wouldn't hold it as unlikely that we'll see some more management changes, which could be a long-term catalyst, and also that we see divestment of their non-streamlined interests to make it a energy company only.
Going by $6.67 per boe, AOI is trading at a basis of 8 mmboe, subtracting the cash position from the market cap and dividing the rest by 6.67. Were LEO to trade at the same factor, it would be at 64 cents per share for oil equivalents plus something like 17.5 cents of cash per share, so around 80 cents. I'm not saying it should be at 80 cents. AOI has less risk than LEO. All I'm saying is LEO seems to me it's got some catching up to do, and with it likely we're going to see management and strategic changes in LEO and hear about testing Boghal-1 for something, there's a short-term upside. Were we to find something in Boghal-1, they'll receive the added premium for the two other blocks in Kenya, where they have 20-25%, but especially for the other one in the Anza Basin. I would never have invested in LEO at 2000 meters depth, but now nearing target depth and knowing what we know through media and seeing the market action, I feel it's a fair risk to take.
Moreover, from the latest release, the wording indicates to me that Somalia is delayed. This means capital expenditures and cash commitments are also delayed. With positive Boghal-1 news of some kind to ride the wave on over the months, it's providing excellent chances of securing a financing in the market. All I'm saying is LEO trading at around cash value is an investment to consider if you want to take your chances on Block 9 but feel AOI has made too big of a run these last days. I wouldn't feel secure buying as many as I would with AOI at around 95 cents, but I like the odds of management getting cleaned up and the potential shown in Africa, so on that basis, I've taken the plunge. Don't buy with money you can't afford to lose, and don't buy unless you believe in Boghal-1.