Africa Oil 2012 Financial and Operating Results
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 03/26/13 -- Africa Oil Corp. (TSX VENTURE: AOI)(NASDAQ OMX: AOI) ("Africa Oil", "the Company" or "AOC") is pleased to announce its financial and operating results for the year ended December 31, 2012.
-- Following the significant light oil discovery at Ngamia-1 exploration
well in Block 10BB, the Company and its partner moved the rig 22
kilometers to drill the Twiga South-1 exploration well in Block 13T
(Kenya) which is on trend with Ngamia-1. Twiga South-1 successfully
encountered 30 meters of net oil pay in three Auwerwer sandstone
intervals analogous to Ngamia-1. The Company and its partner performed a
DST on five intervals at Twiga South-1. The DST on three Auwerwer
sandstone intervals resulted in a cumulative flow rate of 2,812 bopd,
constrained by surface equipment. With optimized testing equipment,
these flow rates are anticipated to have increased to a cumulative rate
of approximately 5,200 bopd. Two deeper tests were also completed on the
tight reservoir rock at the bottom of the well, and despite reconfirming
the presence of movable oil, both zones produced at sub-commercial flow
rates. The well has been suspended as a potential future production
well. The rig has now been moved to Ngamia-1 where testing operations on
five to six zones have commenced.
-- The Ministry of Energy in Kenya has been provided with the Twiga South-1
testing results, which accompanied a formal Notice of Discovery under
the terms of the Block 13T PSC. Following this Notice of Discovery, the
Ministry of Energy has agreed to the Tullow proposal, as operator of
Blocks 10BB and 13T, to carry out a combined exploration and evaluation
program over a defined Area of Interest ("AOI") including all of the
mapped prospects and leads along the basin bounding fault on the western
edge of the Lokichar Basin. The basis of the AOI approach is to adopt a
basin-wide approach to concurrently explore and evaluate the area as
opposed to undertaking well-by-well appraisals for each discovery well.
This basin-wide approach, with regards to the AOI, is mutually agreed to
be the most efficient and quickest approach to moving the exploration
and evaluation work program forward towards reaching a commercial
threshold of reserves required to justify any large scale oil
development.
-- During December 2012, the Company completed a non-brokered private
placement issuing an aggregate of 30 million common shares at a price of
CAD$7.75 per common share for gross proceeds of CAD$232.5 million. The
Company paid a finder's fee of CAD$8.3 million in cash on the private
placement.
-- The Company and its operating partners on Block 10A (Kenya) spud the
Paipai-1 exploration well in September 2012. Paipai-1 was drilled to a
total depth of 4,255 meters. Light hydrocarbons were encountered while
drilling a 55 meter thick gross sandstone interval. Attempts to sample
the reservoir fluid were unsuccessful and the hydrocarbons encountered
while drilling were not recovered to surface. The Company and its
partners were unable to test the well at the time due to the
unavailability in country of testing equipment capable of handling the
higher reservoir pressures encountered at this depth. As a result, the
well has been temporarily suspended pending further data evaluation.
-- The Company and its partners selected Sabisa-1 as the first drilling
location in the South Omo Block (Ethiopia). Sabisa-1 spud in January
2013 and is currently drilling.
-- In Puntland (Somalia), the Company, through its 44.6% ownership interest
in Horn Petroleum Corporation ("Horn"), completed site restoration at
both Shabeel-1 and Shabeel North-1 wells and demobilization from
Puntland has been completed. While the Company was disappointed that the
first two exploration wells in Puntland did not flow oil, the Company
remains highly encouraged that all of the critical elements exist for
oil accumulations and based on this encouragement, the Company and its
partners have entered into the next exploration period in both the
Dharoor Valley and Nugaal Valley PSC's which carry a commitment to drill
one exploration well in each block by October 2015.
-- The Company completed a farmout transaction with Marathon Oil
Corporation ("Marathon") during the fourth quarter of 2012 whereby
Marathon acquired a 50% interest in Block 9 (Kenya) and a 15% interest
in Block 12A (Kenya). In accordance with the farmout agreement, Marathon
paid the Company $32.0 million in consideration of past exploration
expenditures, and has agreed to fund the Company's working interest
share of future joint venture expenditures on these blocks to a maximum
of $25.0 million. The Company has retained a 20% working interest in
Block 12A and a 50% working interest in Block 9.
-- The Company completed a farmout transaction with New Age (Africa Global
Energy) Limited ("New Age") during the fourth quarter of 2012 whereby
New Age acquired an additional 25% interest in the Company's Blocks 7 &
8 (Ethiopia), together with operatorship of Blocks 7 & 8 and the Adigala
Area (Ethiopia). In accordance with the farmout agreement, New Age paid
the Company $1.5 million in consideration of past exploration
expenditures. The Company has retained a 30% working interest in Blocks
7/8.
-- The Company continues to actively acquire, process and interpret 2D
seismic over Blocks 10BA, 10BB, 12A, 13T and South Omo with three
seismic crews currently active.
-- In first quarter of 2013, the Company executed a PSA for the Rift Basin
Area in Ethiopia. Located north of the South Omo Block, the Rift Basin
Area covers 42,519 square kilometers. This block is on trend with highly
prospective blocks in the Tertiary rift valley including the South Omo
Block in Ethiopia, and Kenyan Blocks 10BA, 10BB, 13T, and 12A.
-- Africa Oil ended the quarter in a strong financial position with cash of
$272.2 million and working capital of $237.7 million as compared to cash
of $109.6 million and working capital of $90.2 million at December 31,
2011.
Keith Hill, President and CEO, commented, "Africa Oil is very encouraged with the results of our first two exploration wells in the Lockichar basin. Our improved financial position as a result of the non-brokered private placement and the farmouts completed in the fourth quarter of 2012 will enable the Company to drill and test multiple wells in the Lokichar sub-basin in Kenya in an effort to reach commercial thresholds, and to drill multiple additional potential basin-opening wells across its vast East African exploration acreage."
2012 Financial and Operating Highlights
Consolidated Statement of Net Loss and Comprehensive Loss
(Thousands of United States Dollars)
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For the years ended December 31, December 31,
2012 2011
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Operating expenses
Salaries and benefits $ 3,665 $ 1,696
Stock-based compensation 4,943 4,348
Travel 1,469 1,133
Management fees 294 245
Office and general 718 1,508
Donation 2,313 -
Depreciation 48 48
Professional fees 4,187 1,476
Stock exchange and filing fees 916 547
Impairment of intangible exploration assets 3,127 6,969
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21,680 17,970
Gain on acquisition of Lion Energy - (4,143)
Dilution loss on sale of subsidiary - 4,579
Finance income (1,727) (12,079)
Finance expense 164 2,626
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Net loss and comprehensive loss 20,117 8,953
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Net income and comprehensive income attributable
to non-controlling interest (2,676) (1,691)
Net loss and comprehensive loss attributable to
common shareholders 22,793 10,644
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Net loss attributable to common shareholders per
share
Basic $ 0.10 $ 0.06
Diluted $ 0.10 $ 0.08
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Weighted average number of shares outstanding
for the purpose of calculating earnings per
share
Basic 220,664,278 193,417,492
Diluted 220,664,278 194,030,846
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Operating expenses increased $3.7 million for the year ended December 31, 2012 compared to the prior year. In the current year, the Company recorded a $3.1 million impairment of intangible exploration assets relating to Blocks 7 and 11 in Mali, while in the previous year, the Company recorded a $7.0 million impairment of intangible exploration assets relating to Blocks 2/6 in Ethiopia. In 2012, the Company made a $2.3 million donation to the Lundin Foundation, a registered Canadian non-profit organization that provides grants and risk capital to organizations dedicated to alleviating poverty in developing countries. The increase in professional fees in 2012 was the result of 420,000 common shares issued in the year as a settlement of claimed professional fees relating to previously completed farmout transactions. Compensation related costs and travel costs increased due to increased compensation related costs and travel costs associated with increased operational activity, increased headcount, and the exploration success in 2012.
The gain relating to the acquisition of Lion Energy Corp. ("Lion") in the second quarter of 2011 was a result of the Company acquiring net working capital and intangible exploration assets in excess of the consideration issued. The consideration paid was valued at $21.7 million, net of AOC shares acquired, versus working capital acquired of $20.1 million, excluding the value of AOC shares held by Lion, and the fair market value of intangible assets acquired estimated at $5.7 million.
A $4.6 million dilution loss on the sale of a subsidiary was recognized during the third quarter of 2011 as a result of Africa Oil transferring its Puntland (Somalia) exploration assets to Horn. This transaction was recorded as a reverse acquisition.
Financial income and expense is made up of the following items:
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For the years ended December 31, December 31,
2012 2011
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Gain (loss) on marketable securities (124) 236
Fair value adjustment - warrants 832 8,845
Fair value adjustment - convertible debt - 2,032
Interest and other income 326 966
Bank charges (40) (154)
Foreign exchange gain (loss) 569 (2,472)
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Finance income 1,727 12,079
Finance expense (164) (2,626)
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The loss on revaluation of marketable securities is the result of a decrease in the value of 10 million shares held in Encanto Potash Corp which were acquired as part of the acquisition of Lion. These shares were sold during the three months ended March 31, 2012.
At December 31, 2012, nil warrants were outstanding in AOC. The Company incurred a $3.8 million gain on the revaluation of Horn warrants during the year ended December 31, 2012 due to a significant decrease in the share price of Horn during the year.
The foreign exchange gains and losses are the direct result of changes in the value of the Canadian dollar in comparison to the US dollar. The Company's cash holdings are primarily in US and Canadian currency.
Consolidated Balance Sheets
(Thousands United States Dollars)
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December 31, December 31,
2012 2011
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ASSETS
Current assets
Cash and cash equivalents $ 272,175 $ 109,558
Marketable securities - 2,606
Accounts receivable 2,848 2,717
Prepaid expenses 1,124 600
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276,147 115,481
Long-term assets
Restricted cash 1,119 2,919
Property and equipment 82 39
Intangible exploration assets 282,109 185,672
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283,310 188,630
Total assets $ 559,457 $ 304,111
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LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 36,188 $ 23,768
Current portion of warrants 2,288 1,513
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38,476 25,281
Long-term liabilities
Warrants 828 2,882
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828 2,882
Total liabilities 39,304 28,163
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Equity attributable to common shareholders
Share capital 558,555 306,510
Contributed surplus 12,123 8,425
Deficit (98,076) (75,283)
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472,602 239,652
Non-controlling interest 47,551 36,296
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Total equity 520,153 275,948
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Total liabilities and equity $ 559,457 $ 304,111
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The increase in total assets from December 31, 2011 to December 31, 2012 is primarily attributable to cash received from the CAD$232.5 million non-brokered private placement and farmout transactions which closed in 2012, as well as significant intangible asset expenditures in Kenya, Ethiopia and Puntland (Somalia).
Consolidated Statement of Cash Flows
(Thousands United States Dollars)
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December 31, December 31,
2012 2011
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Cash flows provided by (used in):
Operations:
Net loss and comprehensive loss for the year $ (20,117) $ (8,953)
Items not affecting cash:
Stock-based compensation 4,943 4,348
Share-based expense 3,763 -
Depreciation 48 48
Loss (gain) on marketable securities 124 (236)
Gain on acquisition of Lion Energy - (4,143)
Impairment of intangible exploration assets 3,127 6,969
Dilution loss on sale of subsidiary - 4,579
Fair value adjustment - warrants (832) (8,845)
Fair value adjustment - convertible debt - (2,032)
Unrealized foreign exchange loss 1,055 1,901
Changes in non-cash operating working capital (657) (622)
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(8,546) (6,986)
Investing:
Property and equipment expenditures (91) (39)
Intangible exploration expenditures (133,823) (41,285)
Farmout proceeds 34,259 14,901
Cash received on business acquisitions, net of
cash issued - 18,637
Proceeds on disposal of Canmex, net of
investment in Horn - 29,923
Proceeds from sale of marketable securities 2,442 -
Changes in non-cash investing working capital 12,373 16,611
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(84,840) 38,748
Financing:
Common shares and warrants issued, net of
issuance costs 255,169 3,020
Repayment of liability portion of convertible
debt - (411)
Deposit of cash for bank guarantee (375) (2,175)
Release of bank guarantee 2,175 2,888
Changes in non-cash financing working capital - 169
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256,969 3,491
Effect of exchange rate changes on cash and cash
equivalents denominated in foreign currency (966) (1,821)
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Increase in cash and cash equivalents 162,617 33,432
Cash and cash equivalents, beginning of year 109,558 $ 76,126
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Cash and cash equivalents, end of year 272,175 $ 109,558
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Supplementary information:
Interest paid Nil 411,220
Taxes paid Nil Nil
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The increase in cash in 2012 is mainly the result of funds raised on the AOC and Horn non-brokered private placements, the exercise of warrants and stock options, and the proceeds from farmouts completed, partially offset by intangible exploration expenditures and cash-based operating expenses.
Consolidated Statement of Equity
(Thousands United States Dollars)
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December 31, December 31,
2012 2011
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Share capital:
Balance, beginning of year $ 306,510 $ 163,231
Acquisition of Centric Energy - 60,165
Acquisition of Lion Energy, net of AOC shares
acquired - 21,561
Issued on conversion of convertible debenture - 52,215
Amended farmout agreement with Lion Energy - 5,275
Private placement, net 226,446 -
Exercise of warrants 14,340 3,024
Shares issued in lieu of professional fees 3,763 167
Exercise of options 7,496 872
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Balance, end of year 558,555 306,510
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Contributed surplus:
Balance, beginning of year $ 8,425 $ 4,392
Expiration of warrants - 4
Exercise of Horn warrants 1,148 -
Acquisition of Lion Energy - 110
Stock based compensation 4,943 4,348
Issuance of shares in lieu of professional fees - (167)
Exercise of options (2,393) (262)
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Balance, end of year 12,123 8,425
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Deficit:
Balance, beginning of year $ (75,283) $ (56,570)
Dilution loss through equity - (8,069)
Net loss and comprehensive loss attributable to
common shareholders (22,793) (10,644)
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Balance, end of year (98,076) (75,283)
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Total equity attributable to common shareholders $ 472,602 239,652
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Non-controlling interest:
Balance, beginning of year $ 36,296 $ -
Non-controlling interest on disposal of Canmex - 34,605
Non-controlling interest on issuance of Horn
shares 8,579 -
Net income and comprehensive income attributable
to non-controlling interest 2,676 1,691
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Balance, end of year 47,551 36,296
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Total equity $ 520,153 $ 275,948
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The Company's consolidated financial statements, notes to the financial statements, management's discussion and analysis for the year ended December 31, 2012 and the 2011 Annual Information Form have been filed on SEDAR (www.sedar.com) and are available on the Company's website (www.africaoilcorp.com).
Outlook
The Ngamia-1 and Twiga South-1 light oil discoveries in the Lokichar sub-basin, combined with positive results from reservoir analysis and flow rate tests at Twiga South-1, has led to a significant increase in the pace of exploration focused on tertiary rift basins. The Company and its joint venture partners in the tertiary rift play in east Africa plan to have four rigs operating by the end of 2013. The focus of these rigs in 2013 will be to continue drilling and testing wells in the Lokichar sub-basin in Kenya with improved efficiencies in an effort to reach commercial thresholds, and to drill potential basin-opener wells in the Turkana and the Chew B'hir basins in the tertiary rift play within Ethiopia. The Company and its partners will continue to acquire seismic data throughout the tertiary rift in Kenya and Ethiopia in an effort to add to its existing portfolio of drill-ready prospects.
The Company and its operating partner in Block 9 in Kenya are currently planning to drill the Bahasi-1 exploratory well. This well will be drilled on a large anticlinal structure targeting tertiary and cretaceous sandstones where six billion barrels of oil was discovered along trend in Sudan in a similar geologic setting. A follow-up well is also being considered towards the end of 2013 in Block 9. The Company and its operating partners in Blocks 7/8 in Ethiopia are currently planning to drill a well to appraise reservoir characteristics of Jurassic carbonates on the El Kuran oil accumulation. The main focus of this well is to establish commercial rates with acidizing, fraccing and horizontal sidetracks being considered.
The Company, through its 44.6% ownership interest in Horn, and its partners entered the next exploration period in both the Dharoor Valley and Nugaal Valley PSAs which carry a commitment to drill one well in each block within an additional three year term. The current operational plan is to contract a seismic crew to acquire additional data in the Dharoor Valley block and to hold discussions with the Puntland Government regarding drill ready prospects in the Nugaal Valley block. The focus of the Dharoor Valley block seismic program will be to delineate new structural prospects for the upcoming drilling campaign.
Africa Oil Corp. is a Canadian oil and gas company with assets in Kenya, Ethiopia and Mali as well as Puntland (Somalia) through its 45% equity interest in Horn Petroleum Corporation. Africa Oil's East African holdings are in within a world-class exploration play fairway with a total gross land package in this prolific region in excess of 250,000 square kilometers. The East African Rift Basin system is one of the last of the great rift basins to be explored. Two new significant discoveries have been announced in the Lockichar basin in which the Company holds a 50% interest along with operator Tullow Oil plc. The Company is listed on the TSX Venture Exchange and on First North at NASDAQ OMX-Stockholm under the symbol "AOI".
FORWARD-LOOKING STATEMENTS
Certain statements made and information contained herein constitute "forward-looking information" (within the meaning of applicable Canadian securities legislation). Such statements and information (together, "forward looking statements") relate to future events or the Company's future performance, business prospects or opportunities. Forward-looking statements include, but are not limited to, statements with respect to estimates of reserves and or resources, future production levels, future capital expenditures and their allocation to exploration and development activities, future drilling and other exploration and development activities, ultimate recovery of reserves or resources and dates by which certain areas will be explored, developed or reach expected operating capacity, that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
All statements other than statements of historical fact may be forward-looking statements. Statements concerning proven and probable reserves and resource estimates may also be deemed to constitute forward-looking statements and reflect conclusions that are based on certain assumptions that the reserves and resources can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "seek", "anticipate", "plan", "continue", "estimate", "expect, "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions) are not statements of historical fact and may be "forward-looking statements". Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. The Company does not intend, and does not assume any obligation, to update these forward- looking statements, except as required by applicable laws. These forward-looking statements involve risks and uncertainties relating to, among other things, changes in oil prices, results of exploration and development activities, uninsured risks, regulatory changes, defects in title, availability of materials and equipment, timeliness of government or other regulatory approvals, actual performance of facilities, availability of financing on reasonable terms, availability of third party service providers, equipment and processes relative to specifications and expectations and unanticipated environmental impacts on operations. Actual results may differ materially from those expressed or implied by such forward-looking statements.
ON BEHALF OF THE BOARD
Keith C. Hill, President and CEO
Africa Oil's Certified Advisor on NASDAQ OMX First North is Pareto Ohman AB.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Contacts:
Africa Oil Corp.
Sophia Shane
Corporate Development
(604) 689-7842
(604) 689-4250 (FAX)
africaoilcorp@namdo.com
www.africaoilcorp.com
