Gas Sales Agreement Signed

RNS Number : 6620L

Solo Oil Plc

13 January 2016

 

FOR RELEASE AT 7AM                                                                                                     13 January 2016

SOLO OIL PLC

("Solo" or the "Company")

Gas Sales Agreement Signed

Solo today announces that it has signed the fully termed Kiliwani North gas sales agreement ("GSA") and that Aminex plc ("Aminex") the operator of the Kiliwani North Development Licence ("KNDL") has reported that it has now executed the KNDL GSA for the Kiliwani North-1 well ("KN-1") with the Tanzania Petroleum Development Corporation ("TPDC") on behalf of the KNDL joint venture partnership. 

HIGHLIGHTS:

·     Solo's first production from its investments in Tanzania

·     Take-or-pay contract payable in United States dollars

·     Initial gas price of US$3.00 per million BTU

·     Gas price independent of oil price

·     GSA has an effective date of 31 December 2015

·     Annual price indexation from 1 January 2016

·     Agreed payment security mechanism

The GSA is a depletion contract allowing for the expected production of reserves from the KN-1 well over time.  In each contract year TPDC is required to purchase a quantity of gas and pay whether delivery is taken or not.  The annual quantity represents 85% of the minimum daily quantity of gas to be supplied, initially set at 20 million standard cubic feet per day ("mmscfd"), and adjusted each year in accordance with the terms of the GSA.  Gas from the KN-1 well will be supplied to the newly built Songo Songo gas processing plant where it will be commingled with gas from the adjacent Songo Songo gas field before being transported, by pipeline, to the market in Dar es Salaam. 

Final well preparations are currently ongoing and testing and commissioning of the new Songo Songo plant and pipeline is expected to commence shortly, with KN-1 production being tested at various rates to establish optimum conditions.  During this period TPDC will be invoiced for gas produced at the end of each month and is required to pay immediately. 

The start of commercial operations will be mutually agreed by TPDC and the operator following the testing and commissioning phase.  Each month, TPDC will then be required to pay an estimate of one month's revenues in advance, secured by a letter of credit issued by the Tanzania Investment Bank.  Monthly revenues will be calculated based on actual production at the end of the month with adjustments made for any discrepancy between estimated and actual usage.

Gas will be sold at US$3.00 per million BTU (approximately US$3.07 per mcf), and will increase in line with an agreed United States Consumer Price Index, the price is not directly linked to the prevailing oil price.  Gas revenues will be invoiced and payable in United States dollars.  The gas delivery point is the outlet flange of the Kiliwani North wellhead to the sales pipeline.  By selling the gas at the wellhead the joint venture partners will not be responsible for paying any pipeline transport or any processing fees.

Neil Ritson, Solo's Chairman Commented:

"We are delighted to start 2016 with the milestone signing of the Kiliwani North Gas Sales Agreement.  Gas production can now start, leading to the first revenues from our investments in Tanzania.  We also look forward to further successes in Tanzania during 2016 with the planned appraisal drilling on the Ntorya discovery in the Ruvuma PSC."

Solo holds a 6.175% interest in the KNDL following the TPDC back in that was announced on 5 October 2015.  Solo also holds an option to purchase up to a further 6.175% stake in the KNDL according to the terms previously announced.

As announced in May 2015 reserves at Kiliwani North have been independently estimated as gross mean gas initially in place of 44 billion cubic feet ("bcf") of which gross 28 bcf are expected to be reclassified to proven producing reserves once commercial production operations are underway.

Current participants in the Kiliwani North Development Licence, following TPDC back in, are: Ndovu Resources Ltd (Aminex) 55.575% (operator), RAK Gas LLC 23.75%, Solo Oil plc 6.175%, Bounty Oil & Gas NL 9.05% and TPDC 5%.

Qualified Person's Statement:

The information contained in this announcement has been reviewed and approved by Neil Ritson, Chairman and Director for Solo Oil Plc who has over 38 years of relevant experience in the energy sector.  Mr. Ritson is a member of the Society of Petroleum Engineers, an Active Member of the American Association of Petroleum Geologists and is a Fellow of the Geological Society of London.

For further information:

Solo Oil plc Neil Ritson Fergus Jenkins	[phone]
Beaumont Cornish Limited Nominated Adviser and Joint Broker Roland Cornish	[phone]
Shore Capital Joint Broker Pascal Keane Jerry Keen (Corporate Broker) Bell Pottinger                            Public Relations Henry Lerwill Cassiopeia Services LLP Investor Relations Stefania Barbaglio	[phone] [phone] [phone]

Glossary

bcf	billion cubic feet
BTU	British Thermal Units
mcf	thousand cubic feet
GSA	gas sales agreement
mmscfd	million standard cubic feet of gas per day
reserves	reserves are defined by the Society of Petroleum Engineers as those quantities of petroleum, here oil and gas, which are anticipated to be commercially recovered from known accumulations from a given date forward

 

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