SacOil Holdings - African oil play with the promise of early production - Reiterate recommendation of Speculative Buy at 4.125p with a 27p target price.

Dual-listed SacOil is an independent African upstream oil and gas business. The company offers investors the promise of early production and cash flow as well as the chance to add substantial value by moving opportunities up the value chain. The recently announced interim results served to remind the market of the African oil play’s impressive portfolio. The focus of attention over the past six months has been on the blue sky opportunity in Block III in the highly prospective Albertine Basin the Democratic Republic of Congo (DRC) which has been neatly de-risked following a farm-in by Total. At the same time the team has also has been fast tracking progressing the OPL 233 and OPL 281 concession blocks in Nigeria towards early production and revenues. In October, the company announced a $25 million Standby Equity Distribution Agreement with Yorkville which followed a R75 million (£5.9 million) funding at R0.67 (5.28p) by Timtex Investments which should help provide the funds to accelerate these projects.

Interim results for the six months to 31st August 2011 showed that revenues from the Greenhills manganese operation increased by 17% to R19.3 million. Pre-tax profit came out at R19.15 million compared to a loss of R6.95 million at the halfway stage last year due to principally to receipts and fair value adjustments. In this period, SacOil through its 50%-owned DRC vehicle Semliki Energy SPRL (other 50% holder is DIG Oil Proprietary Limited) successfully concluded the farm-out and transfer of 60% stake in Block III to Total. In this move, SacOil gained cash of $7.5 million, a future contingent cash bonus of $54.0 million payable in two tranches, full carry on exploration costs of at least $35 million until the final investment decision and also the settlement of a $1.4 million loan provided to DIG. Importantly, SacOil has maintained representation on the management committee of Block III in which it now has a 12.5% effective stake that is fully funded.

Block III in the DRC occupies a large acreage in the Albertine Graben which forms part of the Eastern African Rift System where modern era exploration began only in 1999. Since then around 800MMbbls of recoverable oil resources have been discovered, which includes Tullow’s Kingfisher (200MMbbl)…

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