As oil splutters around $45/barrel and rebel groups wreak havoc in north eastern DRC, investors could be forgiven for treating SacOil Holdings with caution.
With a flurry of deals over the past year, SacOil has transformed itself from the owner of a single manganese sulphate plant near Graskop, Mpumalanga, into a pioneer in DRC oil.
It changed its name from Samroc last Friday and simultaneously listed in the oil & gas sector, joining Sasol and Nigerian oil firm Oando.
The name change follows a merger between Samroc and SacOil, first mooted in March.
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There is contention over one of the two blocks SacOil wants to drill. Both UK-listed Tullow Oil and its partner Heritage Oil lay claim to the same blocks on their respective websites. In a shareholders' circular, Samroc warns that Tullow has sent correspondence alleging that Samroc is part of a consortium that has "wrongfully interfered" in its dealings with the government. The two blocks SacOil owns were initially granted to Tullow, but it did not receive the president's signature for this as required.
SacOil is still waiting for the presi-dent to confirm its ownership of the tenements.
SacOil's only executive director, Robin Vela, a former senior investment banker for SG Warburg (now UBS) in the UK, says this should take place "imminently". It was supposed to happen by the end of the month, but unrest in the North Kivu province has demanded President Joseph Kabila's immediate attention.
Vela says the company has already signed production-sharing agreements for blocks one and three in the Lake Albert region in north eastern DRC. SacOil has also paid the government a US$3,5m "signature bonus" for these blocks. All that's outstanding is the presidential decree.
Vela says the signature bonus payment, which effectively buys an exploration and extraction right, is normal in the oil industry. It's not unique to the DRC, and all is above board, he adds. "Everything we've done we've played by the book. We have followed due process in everything."
The president's signing over of the oil properties to SacOil is also the only remaining condition for its merger with Samroc.
SacOil has exploration assets in Madagascar, Kenya and Cameroon as well.
The new company plans to raise $50m (around R500m) in the first half of the year from offshore investors through selling shares. Not many companies would dare try raising that sort of cash in these markets, but Vela is confident the firm will be able to do so.
He says the company already has "indications" of commitment from potential institutional and private funders.
About 80% of this money will go towards acquisitions, with the balance being used to fund exploration. Vela says the company's already well down the acquisition road, and hopes to buy an unnamed 20 000 bbl/day West African oil producer by April 2009 - or at least be named as preferred bidder.
According to Vela, now is the ideal time to go shopping for oil assets. The plunging oil price means they are cheap. Merrill Lynch forecasts oil prices may sink as low as $25/bbl next year, but should average $50/bbl. The expectation is that the price will bottom out in the first half of 2009, before starting a gradual clawback.
Vela says the current low prices, which have fallen from highs of $148/bbl, make the price of the assets as little as a third of what they were a year ago.
The problem is, lower prices pressurise profits. In the DRC, however, SacOil expects to churn out the black juice only in about three years from now, by which time prices should have rebounded.
First the company needs to conduct exploration drilling on its tenements and complete feasibility studies. The areas it owns are in the Albertine Graben region on the border of Uganda, in the Great Rift Valley. Vela says the area isn't affected by rebel leader Lawrence Nkunda's campaigns.
SacOil has political support from SA, in the form of state-owned PetroSA, which it brought in as technical partner on project level. PetroSA will probably take an equity stake of 20%- 40% in each project it selects.
SacOil is negotiating a CEO's contract with an oil stalwart, who Vela says has 35 years' experience in the industry. Vela, who stays as a non executive director, won't name the candidate.
Former Samroc chair Richard Linnell, who is chair of Coal of Africa as well, sits on SacOil's board, as does Jubilee Platinum's Colin Bird.
If SacOil can rope in a heavyweight CEO, it will boost the company's credibility. It could use this, given the blue-sky nature of its DRC oil tenements. There will still be barrels of risk in SacOil, but punters might be rewarded - if they can get past its unfortunate name.
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