by Travis Johnson, Stock Gumshoe | July 24, 2012 10:26 am
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Source URL: https://www.stockgumshoe.com/2012/07/more-biggies-buying-in-to-kenya/
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Travis what price target would you recomend buying the stock at?
I’ve never recommended buying the stock. I bought my shares at an average cost of about $2 before the discovery, a matter of luck (in the short term, anyway, expectations were not particularly high for that first hole that did so well). I think it’s fairly easy to justify the share price at this point still, but I don’t have a buy price target.
The company does have some potential valuation guidelines in their presentations — slide 26 and 27 here: http://www.africaoilcorp.com/i/pdf/AOI_May_2012.pdf
Which supplies this basic metric on their first hole: If you think the 10BB hole (their first discovery) has a 50% chance of having the oil they expected to find, that’s half a billion barrels and at $4/barrel that’s a $2 billion value for that one field. Which is right about what the market cap of Africa Oil is right now, and they have many other potential targets that already have joint-venture partners or farm-outs. So you can justify the current valuation just fine, but it does depend on oil that’s not yet in the “proven reserves” category, it’s still pretty early days.
Thanks Travis for the always informative info.
Travis do you see any other companies besides Afirca oil and Lornho that are in that region that can break out like Africa oil did?
I definitely don’t see Lonrho breaking out like Africa Oil did — AOI’s breakout was caused by a spectacular oil find in the first hole they drilled, which was lucky and meant investors (including me) were speculating on exploration and happened to be rewarded spectacularly. I think it was intelligent speculation given AOI’s positioning and partners and backers, but speculation nonetheless. Lonrho is a steadier and slower-growing services conglomerate.
There are a lot of other oil and gas explorers in the region, both offshore and onshore East Africa where oil and gas finds have been made, the area has heated up considerably in the last year or so but I haven’t personally noted any junior stocks in that group that I like over the others and I don’t spend a lot of my time looking for junior oil stocks (since, like junior mining stocks, they require some expertise to analyze and most of them will never do anything but spend money). If you want one that has NOT yet made a discovery and therefore hasn’t yet had much opportunity to run up in price, Vanoil Energy is one that has been mentioned by a few readers as a possible alternative to Africa Oil when it comes to Kenya specifically. They have two blocks in Kenya but they’re up against their deadline — they recently got an extension from the government (production sharing contracts with governments generally have mandated performance requirements — have to collect seismic data, drill a hole, or spend a specific amount of money by a particular date to keep the block), and say that they will be on track to analyze their data and start drilling their first exploratory hole in January, so they’re roughly a year behind Africa Oil on that front but are far, far smaller. I don’t know anything else about them, other than the fact that they’ve been called to my attention by a couple readers over the last year. Their website is here.
Thanks again Travis your the man!!
I don’t remember whether I bought this as a result of one of your articles or for some other reason. I can’t discern your first citing of AOI.V. I do know I paid 1.55/share when I bought it in June 2011 and it’s up 537% so if it was due to you, Travis, thanks. And if not, thanks for bringing it to everone’s attention.
I guess I should have bought more than 5000 shares lol.