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The company is focused on lifting output from Nigerian asset
Thursday 27 Apr 2017 Author: Tom Sieber


A material ramp up in output from Nigerian oil producer Eland Oil & Gas (ELA:AIM) over the next six months could act as a significant catalyst for its share price.

The company’s main asset is the OML 40 licence onshore in Nigeria’s Niger Delta, in which it owns a 22.05% stake through its Elcrest Exploration and Production joint venture. It contains two fields, Opuama and Gbetiokun, with current proved and probable reserves of 83m barrels.

Elcrest is estimated to owe Eland as much as $360m and until this sum is repaid Eland receives 100% of the cash flow from Elcrest’s 45% interest in OML 40.


The plan is to boost production from OML 40 from a current 8,000 barrels of oil per day (bopd) to 17,500 bopd early in the second half of 2017 and 25,000 bopd around the turn of the year.

This will partly be achieved through drilling a side-track on the Opuama-7 well (using a different hole or wellbore to gain access to the oil) for which the company is fully funded following a redetermination of its borrowing base.

Eland has $9m left unused on its $24m lending facility and a current cash balance of $7.5m. It is also set to receive an $8.5m payment for its crude in the near-term.

ELAND OIL & GAS - Comparison Line Chart (Rebased to first)

An extended shut down of the country’s Forcados oil terminal due to militant attacks has seen an alternative route to market developed, shipping crude using tankers. This solution has a maximum capacity of 20,000 bopd.

Chief executive George Maxwell says the revenue from the oil minus the costs of getting it to market on the shipping solution is $12 per barrel at an oil price of $50 per barrel. That compares with $27 per barrel (revenue minus costs) if Forcados was operational.


Canaccord Genuity values Eland at 40p based on the shipping option and 110p on Forcados coming back on stream.

The company trades on 5.8 times forecast adjusted 2017 earnings per share falling to 3.1 times for 2018 when free cash flow of $26.3m is also pencilled in.

From our point of view this more than prices in the significant security and political risks associated with operating in the Niger Delta.

Maxwell set up Eland with Leslie Blair in 2009 and moved from the finance director role to replace Blair, who moved to an advisory role, as CEO in 2014.

Both are former employees of Addax Petroleum, one of the few UK-listed success stories in Nigeria which was snapped up for $7.2bn by Chinese firm Sinopec in 2009. (TS)

Eland Oil & Gas (ELA:AIM) 57p

Stop loss: 45.6p

Market value: £106m


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