Anglo African Oil & Gas PLC (LON:AAOG) shares jumped on Tuesday as it announced plans for a non-binding agreement with “an international oil marketing and trading company” which would provide up to US$25 million in offtake and prepayment financing for development of the Tilapia field.
The AIM-listed firm holds a 56% interest in the asset, located in the Republic of the Congo.
In a statement, AAOG chief executive James Berwick said: “We welcome the opportunity to secure this offtake and prepayment financing for the development of Tilapia, which, in the success case at TLP-103C-ST, avoids the need for further equity financing and subsequent dilution for shareholders as we expand the production capacity of the site.
“We are working hard towards finalising definitive agreements that can be signed after TLP-103C-ST has been successfully drilled.”
The junior oiler said that once the final deal is signed and the TLP-103C-ST well goes into production, the offtaker will be delivered 4.5mln barrels of crude at a price yet to be agreed and will pay US$25mln upfront, which will be employed for further wells and the construction of a 7 kilometre (km) pipeline to tie into a nearby export terminal.
AAOG said the financing will have a maturity date of 31 December 2022, a three-year tenor and a coupon of London Interbank Offered Rate (LIBOR) plus 6-7%, all secured against the Tilapia licence.
In a note to clients, finnCap analyst Jonathan Wright commented: “Great news for AAOG, which has entered into an indicative term sheet for a $25m offtake prepayment facility that is expected to fund the development of its Tilapia field if the upcoming sidetrack into the Djeno reservoir is successful. Critically, this will remove any need for additional equity financing to fund the development.”
AAOG shares were up 15% to 3.37p on Tuesday afternoon.
— Adds broker comment, updates share price —