Merrill Lynch published the following note yesterday after the Afren/EoN/African LNG announcement.
Quote
'"Afren has this morning anounced that it has entered into a co-operation
agreement with E.ON Ruhrgas AG (the German utility) and African LNG Holdings (a private company linked to Afren led by Theo Oerlemans, the former CEO of Nigeria LNG) to investigate the availability and accessibility of gas in Nigeria, with a focus on the Anambra Basin and South Eastern regions. The parties have the intention to jointly develop, collect and monetise the gas for domestic and export purposes in line with the Nigerian Government's 2008 Gas Master Plan.The
Agreement includes an analysis of potential feedgas, based on an identified target list of upstream gas rich assets and a study of gas gathering infrastructure and potential LNG export solutions. The parties will subsequently decide on jointly establishing corporate structures and funding arrangements.

We view this morning's anouncement extremely positively. It would apear that Afren is aiming to access a host of multi-Tcf gas opportunities in Nigeria, leveraging Eon's execution and midstream skills to commercialise this gas. If this JV were to progress as planned we would expect the partners (Afren, Eon and African LNG holdings) to anounce the acquistion of signficant gas reserves and the commencemnet of an LNG FEED study within the next 18 months.

We remain strong Afren buyers, with our key investment themes contiuing to centre around: (1) well connected and proven management team; (2) strong deal pipeline likely to result in series of materially NAV accretive asset deals in 1Q/2Q08; (3) strong forecast production growth; and (4) valaution, with the stock trading at a 15% disocunt to our 106p/sh NAV (core - 74p/sh, dev - 84p/sh, exploration - 22p/sh)."

E.ON Ruhrgas mulls Nigeria gas acquisition

http://www.auswaertiges-amt.de/diplo/en/Wi...n/080123-2.html

Hamburg - German energy group E.ON is considering taking a stake in a Nigerian gas and oil company, Afren, an executive said in a news interview on Tuesday. E.ON's gas trading arm, Ruhrgas, which currently pipes gas into Germany from Russia and the North Sea, is seeking gas reserves which can be carried to Germany by ship.

"We are considering cooperation with Afren, which is a stockmarket-listed African company," Jochen Weise, a member of the Ruhrgas board, was reported saying by the web edition of the newspaper Financial Times Deutschland.

Afren is an oil production and transport company.

"There are a lot of scattered natural gas wells in Nigeria that have not so far been exploited commercially," Weise said. E.ON Ruhrgas proposed compressing the gas to liquefied natural gas (LNG) and shipping it to Europe.

"We'd like to establish LNG as our third stream of gas," he said. The other two streams were from Russia and Norway.

Berlin has been encouraging the industry to set up Germany's first LNG import terminal at Wilhelmshaven to reduce dependence on Russia and encourage price competition, but the project has not begun.

Plenty of room for minnows
By Dino Mahtani
Published: January 28 2008 02:00 | Last updated: January 28 2008 02:00

Africa is not always an easy place to do business, but that has not stopped a surge of small and mid-sized oil companies flooding into the continent. With many of the oil majors in the past few years focused on the multibillion dollar deepwater investments in the Gulf of Guinea, and oil prices so high, the past few years have seen plenty of incentives for smaller companies to try to make it big in Africa.

Such companies have generally secured licences that have been ignored or relinquished by the majors, while others have moved in as minority partners in financing arrangements in oil and gas developments.

If they develop their assets cleverly, or even discover significant oil finds, the rewards may be a lucrative takeover bid from a big company.

Last year's bid by Eni, the Italian major, to acquire Burren Energy, its partner in the M'Boundi field in the Democratic Republic of Congo, seeing off a rival bid by Korea National Oil Company, helped raise the profile of many other smaller oil companies operating in Africa.

"It is not a dissimilar situation to the North Sea or the Gulf of Mexico 10 or 15 years ago," says Osman Shahenshah, chief executive of Afren, an oil and gas company founded with the specific intention of investing in Africa. "Essentially, the creation of a secondary market is just beginning to happen on the continent."

Companies that are interested in Africa range from small start-ups that have snapped up speculative oil licences, to the likes of Tullow Oil, which has booked a relatively large discovery in Ghana and which today has a market capitalisation of more than £3.7bn. Medium- sized companies from the Arab world have also started expressing an interest in holding African oil and gas assets.

Some of the more successful companies have built up their reputations by leveraging their insider contacts in government circles.

Indeed, Afren's founding board members include Rilwanu Lukman, the former president of the Organisation of the Petroleum Exporting Countries and Nigerian presidential adviser, which probably goes some way towards explaining why Afren was able to secure a $200m non-recourse facility from BNP Paribas, the largest loan the bank has ever made to a company with no cashflow

The idea that even small companies can find a way of getting hold of prized assets in Africa has been a boon for many such companies looking to attract investment from equity partners. Jon Clark, an analyst at Ernst & Young, estimates that small oil and gas companies listed on London's riskier Aim index, many of which have an Africa focus, have raised £2bn through equity participation in the past two years, despite their relatively weak cash positions.

But the share price volatility of such companies remain high because their assets are often concentrated in a small number of countries. Indeed half of small oil companies trading on Aim are now below their issue price.

Some companies have raised cash from hedge funds without having any seismic data to back up the claims on their licences. Others have been caught out when much talked-about political connections backfire. In a tight credit environment, amid spiralling costs, companies focusing on exploration without a production profile could find themselves in real trouble.

"A few of the smaller companies that got into Africa early are having it good, but if you get in now, its going to be highly competitive," says Brendan Wilders, an analyst at Oriel Securities. "A lot of the decent acreage has already been licensed out," he says.

Even then, having good acreage can count for nothing. Investors in Equator Exploration, which has stakes in prime acreage off the coast of Nigeria have lost about 95 per cent of their investment in the past two years. The company had failed to deliver on its assets and ran up losses of $84.7m last year.

Equator is now looking to draw a line under its recent difficulties, though it is having to attempt a recovery by selling stakes in whatever is left of its exploration portfolio, with a recent deal to farm out some acreage to BG.

In the meantime, some companies, detecting wider investor scepticism, are busy looking to tie themselves more closely with African investors who may also have clout in government circles.

During the credit crisis last year, Afren still managed to secure a $50m loan from a Nigerian bank. "African financing is very important for us. We see more of that coming," says Mr Shahenshah.

Copyright The Financial Times Limited 2008

A joint venture has been formed in Nigeria that will see a new LNG transportation company formed. NNPC, Malaysia International Shipping Company (MISC), Hyundai Heavy Industries (HHI), and Deep Water Shipping Company Ltd. have all signed a shareholders agreement for the formation of a firm to be named Nikorma Shipping Services Ltd., to handle the LNG transportation network for Nigeria.

Group Managing Director of NNPC, Abubakar Lawal Yar'Adua, said that the formation of Nikorma is a plus for NNPC and that it is “imperative to commence the transportation business to ensure value addition.” According to other NNPC officials the venture contains enormous benefits for Nigeria and will aid the country in developing expertise in the shipping industry.