Africa Oil - Top Tier Up-And-Coming Oil Corporation

| About: Africa Oil (AOIFF)
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Summary

Africa Oil Corporation has raised almost $0.5 billion in cash with zero debt. The company does not anticipate needing additional cash before first oil.

The company has estimated resources of 1.6 billion barrels of oil with 0.76 billion barrels confirmed. This is worth tens of billions of dollars.

Africa Oil is a company with an incredibly strong financial position given the present oil environment, and impressive assets. This makes it a strong investment.

Africa Oil Corporation (OTCMKTS: OTCPK:AOIFF) is a Canadian oil and gas company that operates out of Africa, with assets in Kenya and Ethiopia. The company is also listed on the Canadian stock exchange and believes it holds significant amounts of high potential acreage. As we will see throughout this article, Africa Oil's blend of impressive asset potential and strong financials make the company a solid investment at the present time.

Introduction

Africa Oil Corporation was originally incorporated in Canada in 1983 under the name Canmex Minerals Corporation. From there, the company changed its name to Africa Oil Corporation in 2007 and has since focused its operations heavily on the East African Rift Basin, which the company states is one of the last great rift basins to be explored. Should the company be correct, this has significant potential for investors.

Africa Oil Corporation

Africa Oil Corporation's stock price peaked in late 2013 at just under $10 per share. From that point, as oil prices fell to a January 2016 low of less than $30 per share, so too did Africa Oil Corporation's stock price all the way to a price of just over $1 per share. From there, the company's stock price recovered to an early 2017 high of just over $2 per share before dropping down to present prices of roughly $1.5 per share.

Now that we have an introduction to Africa Oil Corporation along with a discussion of the company's stock price performance, it is now time to continue with a detailed discussion of Africa Oil Corporation.

Africa Oil Corporation Strategic Position

Let's continue by discussing Africa Oil Corporation's strategic position including the company's positioning for a recovery in oil prices.

Africa Oil Corporation Enviable Financial Position - Africa Oil Corporation Investor Presentation

Africa Oil Corporation has a highly enviable financial position for the oil crash with $0.45 billion in cash and no debt after a 2015 fund raising effort. This is a very enviable financial position given the $0.67 billion market cap of the company, the company has almost its entire market cap in cash, which is incredibly impressive. More importantly, the company has the potential to earn another $0.48 billion in additional development funds from Maersk with no further equity raise required before first oil.

Currently, Africa Oil Corporation has a high impact drilling and evaluation program underway for its assets with 4 wells drilled and another 4 planned. The company has successfully completed injection testing and has plans to further de-risk its resource base increasing its future earnings. As the company's pipeline decision moves forward, this has the potential to bring Africa Oil Corporation significant profits.

Africa Oil Corporation Rift Valley Land Base - Africa Oil Corporation Investor Presentation

The Africa Oil Corporation has a significant rift valley land base with its world class onshore discovery in the South Lokichar Basin in Kenya. The company has discovered more than 760 million barrels of oil and the company's resources have the potential to expand up to 1.6 billion barrels. Given the company's low cost development and good fiscal terms, these oil resources easily have the potential to generate tens of billions in profits.

On top of these impressive discovered resources and low costs, Africa Oil Corporation's new basin is in an area with high growth potential. That means that further exploration in this region can lead to the discovery of noticeable additional resources and additional income for Africa Oil Corporation. As we can see here, not only does Africa Oil Corporation have impressive present resources but the company also has room for expansion.

Africa Oil Corporation Resource Growth - Africa Oil Corporation Investor Presentation

Now we can finish our discussion of Africa Oil Corporation's strategic position by discussing the company's South Lokichar Basin. The company's resources in this region have grown by an average of 50% year on year and the company has encountered some amazing new resources. The company has found some of the best quality reservoirs seen to date and anticipates resources should continue to grow.

As we can see here, overall Africa Oil Corporation's strategic position is supported by an impressive resource base that is quickly growing. On top of this, the company's resources are low cost and the company anticipates it will not need to sell any additional equity to reach first oil. That means that Africa Oil Corporation is well on the path to becoming a profitable company, and will ideally reach that point without noticeable additional dilution of shareholders.

Africa Oil Corporation Future Strategy

So far, we have discussed Africa Oil Corporation's strategic position in detail, including the company's impressive and low cost assets. Now it is time to finish up by discussing Africa Oil Corporation's strategy to turning these assets into profits.

Africa Oil Corporation Near Term Basins - Africa Oil Corporation Investor Presentation

Africa Oil Corporation is currently the near-term basin opener in three basins, the South Kerio, North Turkana, and Lakes Abaya-Chamo basins. The company anticipates that the South Kerio basin could share the same source as the South Lokichar meaning that it has the potential to hold an equally impressive amount of oil. This could more than double Africa Oil Corporation's present resource base.

At the same time, the company's North Turkana assets have the potential to generate the company significant oil. And the company's Lakes Abaya-Chamo assets are a few years away, but current investigation shows the chance for some respectable resources. Africa Oil Corporation plans to continue investigating these resources and using them to grow its resources.

Africa Oil Corporation Kenya Government Pipeline - Africa Oil Corporation Investor Presentation

On top of this, Africa Oil Corporation is currently focused on a new oil export pipeline with Kenya. The Kenyan government is committed to the northern route of this pipeline but other countries with potential oil production or demand such as Uganda or South Sudan might be added to the pipeline. Such a pipeline will noticeably decrease Africa Oil Corporation's costs to export oil when it achieves production.

Africa Oil Corporation Upcoming Plans - Africa Oil Corporation Investor Presentation

Overall, the above slide shows Africa Oil Corporation's 2017 strategy. The company plans to increase the resource size while verifying the certainty of these resources, or the likelihood that they are in fact where the company thinks they are. The company then plans to expand its upstream assets and move forward with plans for the pipeline.

As we can see here, Africa Oil Corporation plans to use 2017 to get the infrastructure in place to progress towards full blown production. This will put the company much closer to becoming a profitable and valuable oil company.

Conclusion

As we have seen throughout this article, Africa Oil Corporation has had a difficult time since the start of the oil crash. The company has watched its stock price drop more than 80% since its late-2013 peak, and even with the company's recent recovery, its stock price is still well below pre-crash highs. However, the company is well-positioned with strong recovery potential. The company has $0.48 billion in cash, close to its entire market cap, and does not anticipate needing a capital raise until first oil.

On top of this, Africa Oil Corporation presently has 760 million barrels of discovered oil with the potential to increase this to 1.6 billion barrels of oil. This oil has the potential to be worth tens of billions of dollars. Given that Africa Oil Corporation has significant cash and no debt, it should be able to access this oil and generate a profit without any issue. Africa Oil Corporation is also focused on preparing for eventual oil. The company is working with Kenya to build an oil pipeline while verifying its existing resources.

As we can see here, Africa Oil Corporation's strong finances, impressive asset potential, and new plans for oil exportation make the company a top tier up-and-coming oil corporation and a strong investment at the present time.

Disclosure: I am/we are long AOIFF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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