This Well Could Hit 20 Million Barrels–The Play of the Year — African Hydrocarbons (NFK-TSXv)

by Keith Schaefer on April 15, 2013

Investors Will Know if African Hydrocarbons (NFK-TSXv) will be a 10-Bagger by the end of June
One of 2013’s most high impact wells—across the entire junior energy sector—is set to drill.  The good news for investors is:1.     It’s a geological dead ringer on new 3D seismic only 25 km away from a well that flowed over 10,000 bopd and alone had cumulative production of 22 million barrels
2.     The well only costs $7 million (gross)—one of the best risk/rewards I’ve EVER seen
3.     That’s almost a $200 million play potential—and it’s housed in a 15 cent stock that has $8.9 million cash. That is leverage!

“I’ve been in this business for over 27 years, and very rarely have I seen this kind of risk-reward in a play,” says John Nelson,President of Africa Hydrocarbons (NFK-TSXv).

“We’re talking about a $7 million well that is extremely similar, geologically, to the Sidi el Kilani field that produced over 50MM barrels from 5 wells and had one well produce more than 20 million barrels on its own, only 25km away.”

That $200 million play potential I spoke to above?  That’s just for Africa Hydrocarbon’s 47.5% Working Interest (WI) in the well on their Bouhajla block, located in northern Tunisia that is set to drill in May.  Close in geology and geography to Sidi el Kilani, it’s a speculator’s dream, and the price is right at 15 cents.

I do want to tell you how fast this discovery will get into production and start flowing cash if they hit—it’s all there with extra room for more oil.

But the story of Sidi el Kilani is too good to ignore.  It’s a clash of titans.

Like many great discoveries, it was an accident.  In the late 1980s the Kuwaiti Petroleum  Corp (Kufpec) was partnered with the French giant Elf Aquitaine (now Total), drilling for oil in a deeper reservoir below Sidi el Kilani—which is only 2300 metres deep (think regular Alberta well).

So two deep pocketed majors are drilling—and the first well missed. The second one…missed as well. And the third. So did the fourth, fifth and sixth.

Elf had enough. Just as the seventh well was being drilled, they pulled out.  The Kuwaitis went and drilled it anyway—and a 50 million barrel field was discovered.  And all that oil was produced from just FIVE wells!  And one of them produced over 20 million barrels.

Imagine spending tens of millions of 1980s dollars over six wells, walking, and watching your ex-partner hit THE Gusher on the next one.  Elf tried to get back in by paying a penalty, but the contract didn’t allow for that.

That’s a GREAT discovery story, with a little bit of salt ;-)

After that, Kuwait was invaded and then they lived in the shadow of Saddam Hussein’s ambition for years.  Kufpec turned their attention away from Sidi el Kilani to help revive the homeland oilfields.  They returned long after Desert Storm, but the Kuwaitis never really explored the rest of their assets. Low oil prices in the late 1990’s didn’t help.

It was only a few years ago that the Tunisia government forced them to give up at least SOME of their land package.

And that’s when the juniors got involved.  The NFK team liked the asset after spotting hints of a Sidi el Kilani type structure on the old 2D data.  New 3D seismic shot last year now shows that was a good call – it’s crystal clear!

Few geologists know more about African rift plays than CEO John Nelson.  He was CEO of Lion Petroleum that had a 20% WI in Kenya’s Block 10BB— which he sold to the Lundin family’s Africa Oil (AOI-TSXv).  They later hit the Ngamai-1 on that block and created $1+ billion market cap company overnight.  So he’s got a big success under his belt in finding and securing high quality assets for investors.Tunisia isn’t East Africa. The rifts in Tunisia are much smaller—so there’s not a lot of major oil companies. (But you won’t believe where one of them staked a massive land position–more on that below.).  The geological history can be tough to figure out but Nelson recognizes the potential.

“I’ve got a good background in structural geology. I’ve looked at projects all over the place,” he told me in an interview, outlining how he spent the first several years of his career honing his craft studying and exploring rift basins in East Africa and other areas of the world for Mobil.

“There has been a lot of drilling in the Pelagian basin in Tunisia and so the geology is pretty well understood. We have a good seal in the region, and have good source rock and good reservoir and pretty much everything looks good.”

By the way, Bouhajla does have a BIG target—a 5 km x 1 km structure.  The first well alone (drilling in May) has a pay target of over 200 metres based on the 3D seismic.

Production from Bouhajla could start quickly for Africa, with trucks at first, and pipelines would follow quickly after that—within a year of well completion and receiving a development license, says Nelson.  All-in costs net to NFK would be just under $10 million–an incredible return on investment if they hit a Sidi el Kilani look-alike.

And there’s lots of oil capacity nearby, begging for production.

Within 30km of African Hydrocarbon’s well is a facility originally built for the Sidi el Kilani capable of handling 25,000 barrels a day (bbls/d), but now only has 1,000 bbls/d flowing in and out.

There is also a pipeline in the field that stretches to a port on the coast that’s also got plenty of capacity to spare.  This well is actually in NORTH Tunisia, where there are lots of roads, towns, infrastructure, etc.

By African standards, there are a lot of oil services in the area.  In that sense, it’s the Alberta of North Africa.
So commercial oil will find a market real fast.

I think that there is an incredible amount of evidence to suggest a major oil field, backed up by nearby under-utilized infrastructure, for a 15 cent stock.

And everybody knows success funds itself—raising money to get this into production would be easy.

There’s two more quick items to tell you about African Hydrocarbons.  Yes, there is a GREAT geological target for a fully funded 15 cent stock that could make it a 5-10 bagger; Sidi El Kilani had an 11,000 bopd producer. It’s a home run.
But on a $7 million well cost, hitting a bunt single—400 bopd well—would still be economic.

And there are lots of other targets on the 135,000 acre property—and they’ll have $3 million leftover to drill them. Even a little success will de-risk the other targets which could be as big or bigger than the first one.  Their first three prospects at Bouhajla total 1 billion barrels of OOIP—Original Oil In Place. There’s still a few big elephants left in Tunisia.

And lastly, everybody remembers that the Arab Spring started in Tunisia.  It’s always been the most Western north-African country.  The country has been running smoothly with a coalition government for the last year.  Permits are still being signed, and the drill bits are still turning.  It is business as usual.

An upcoming election will make it more like the US election system.

There are other angles I don’t even have room for here, like why Shell will now spend $150 million on the acreage they bought right around African Hydrocarbons (and has five times the acreage NFK has!).  I told you there was some major activity going on.

But understand that this 15 cent stock is drilling a geological dead ringer for a field only 25 km away that produced 50 million barrels of oil from just 5 wells.  And this well only costs $7 million.

They have all the money plus some for well #2.  Drilling starts around mid-May and results will be known by the end of June.  It’s a fast play with lots of leverage.

And it’s got all that on a much lower risk profile. They’re drilling in the Alberta of Africa.  It’s a known basin.  Shell has staked all around them.  Someone will take them out if they hit.

African Hydrocarbons (NFK-TSXv) has a great shot at being The Play of The Year.

ADVERTORIAL BY KEITH SCHAEFERAfrican Hydrocarbons management has reviewed and sponsored this article.

The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons.  Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom.  Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements.  No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.

Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity.  He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.

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