AAOG research note @BadmanTrading

What is AAOG?

Anglo African O&G is a small E&P company based in the Congo, they boast an excellent address right next
door to the ENI-operated Litchendjili eld and the 5kbpd Minsala Marine eld.

Quick facts:

*Mkt cap at placing 10.6 million.

*Fully funded drill campaign.
*69.51m shares in issue.
*No debt.
*Management aligned with share holders through incentive from production targets.
*Progressive dividend policy at 50% of prot once 1kbpd is reached. With scope for higher.
*Company Breaks even at 250bpd, is highly protable at 750bpd.
*Will fund any extra work internally from company prot.
*There will be no further asset hunt.
*Targeting over 5000bpd from all operations.
*Over 60% of free oat is held by institutional investors, sister or other entities.

How much oil is in the Congo?

At the moment there are 3.5 billion boe in the Congolese marine block X11. Total have stated that there is
probably still another 40% to be discovered. So that's the best part of 5 billion boe, in the Congo.

Current daily production is around 350kbpd

How much oil can AAOG get, realistically?

Other companies within the area are achieving over 5000stb/d from wells within the Djeno sands with or
without Fracking. AAOG intend to drill into the Djeno in September 2017.

The two work-overs TLP-101 and TLP-102 are currently being reworked again with a different approach.
The nal goal from these is 250bpd combined. Views are that they could yield much less or much more
than the (P10 equivalent) of 250bpd.

Both the work-overs and the drills are in great locations, so the board have every reason to be condent.
AAOG are sandwiched between some very large and producing oil and gas elds which total over 1.5
billion boe. So, through work-overs, an appraisal drill and an exploration drill, AAOG are rightly expecting
well over 750bpd which would see them as a highly protable company.

Oil production in the Congo is expected to increase by 350k bpd in 2018.

What is the plan?

There are two operations. Firstly we have the offshore wells located in the Tilapia eld 1.8km from
coastline (drilled from onshore) these are the subjects of the Work-overs, TLP-101 and TLP-102.

TLP-101; Initially the technical team thought the installation of a pump would increase production. It turns
out that TLP-101 has suffered the same problem other producers have found with low API oil in the
Congo. It's VERY waxy, and this wax leads to the clogging of the line if not properly maintained. This is
easily sorted with a toluene solution circulated through the well, wellhead and ow lines. It has been
demonstrated that anywhere from 15-100% well function can be restored after a proper clean out. TLP-101
owed at 942stb/d on initial ow test and has over time reduced to its current 45bopd. Expect an update
on this well by the end of August.

TLP-102; This well has always been stubborn, AAOG aim to achieve 20stb/d from R1 and a further 80stb/d
from R2 (100stb/d total) through coil tubing or the use of sh-bones technology. Well data has conrmed
hydrocarbons and workable pressure are present. The boards failure to quit on this well perhaps means
that they feel they can get decent production levels out of it with a bit more work. They will need to use the
rig which is due onsite in September (for TL-103) or get a coiled tubing unit on site to complete these
interventions. Expect an update on this well late September/early October.

Next, we have the multi horizon drill.

TLP-103; This is where it gets really exciting, First we drill to appraise the Mengo well. Then, We head
deeper down (350m) into the Djeno sands. YES all in one uid drill with the same rig, no need to waste
time or money on rig build.

The Mengo's contingent resources ranges from a low case estimate of 1.9 MMstb up to a high case
estimate 23.8 MMstb with a 60% COS.
The Mengo drill is being classed as an appraisal well as it's into an 'un-developed discovery'. For a
mid case scenario the board would envisage 12 wells pumping 350stb/d each. Mid case being 8.1
MMstb.

MMStb is millions of stock tank barrels.

The next part of the drill is 350m down through the Mengo sands and is known as the Djeno prospect.

The Djeno is potentially prolic in both gas and oil. The oil rim has a low estimate of 6 (MMstb)
prospective resources and a high estimate of 42.3 (MMstb) prospective resources . The Gas column has a
low estimate of 97.8Bscf and a high estimate of 625Bscf of prospective resources. Daniel Cottenham

Its worth noting that both SOCO and ENI are pumping very good quantities of oil from both the Mengo and
the Djeno.

This is AAOG's exploration well;

*A trap is likely present (70% chance)

*The Djeno is present and effective in nearby wells (80% chance)
*Seal is likely un-breached (90% chance)
*Chance of oil rim 50%
*Chance of discovery 25%
Worth noting, most wildcat drills have less than 20% COS (5-14%)

Gas, you say?

Yes, and quite a lot of it. One of the problems with the Djeno is that there is so much gas, controlling it will
be a challenge in itself.

To quickly skirt over the point, signicant recent thought and infrastructure development has been
underway in the Congo to capitalise on the large amounts of gas being produced. At the moment, onsite
gas is being ared but there will certainly be opportunity for direct gas sales or onsite electricity
generation. This will at least help reduce CAPEX onsite and at best, could add to the bottom line with prot
generation from gas sales.

Additional info.
*Offtake agreement signed.
*No minimum or maximum production.
*PK trucks all product to renery. (17km away on paved roads)
*A 15% royalty is taken from gross oil revenue.
*PK's break-even cost of production at 5,300bopd is less than $5pb at an oil price of $35pb.
*On site storage for 5000stb

So, what else?

Lets look at the dividend policy rst, then we can examine how the board are incentivised through options.

Dividend policy:

The dividend policy will be to distribute free cash to shareholders through regular payments, once
production reaches a sustained level of 1,000 bopd and provided oil prices remain above US$30. If those
criteria are met then then the dividend shall be paid at 50% of net prots.
Further, if production were to be 5,000 bopd and price of oil not less that US$30 then the
dividend will be at least 75% of net prot.

So, dividend paid from net prots!

Board incentives:

There are 4 Executive Directors and 2 non-executive Directors.

The non-executive Directors shall not be paid more 180,000 a year

Firstly, its worth noting that on failure to deliver production of at least 400bopd by the 30th June 2017, the
Executive Directors have agreed to defer 50% of their salaries, until monthly cash-ow allows an increase
back to full level. There is also a catch in there that states if oil production is below 400bopd but the price
of oil is above US$35 then the board will also look to defer part of the remuneration of the directors too.

So the whole board take a hit for not meeting targets.

Now, the Executive directors have been paid 30k (25% of 120k) each of their consultancy fee on
admission to aim.
The nal part (75%) has been deferred and is paid upon reaching these levels of performance.

(i) 25% on completing the work-over and achieving daily production in excess of 500bopd on average over
a consecutive 30-day period.
(ii) 25% on achieving daily production in excess of 625bopd on average over a 30-day consecutive period.
(iii) 25% on achieving daily production in excess of 750bopd on average over a 30-day period.

On top of this, the 4 Executive directors have an options incentive scheme that gives them the option of
ordinary shares at the placing price equal to 15% of the fully diluted share capital. (12,265,511)

Options will not Vest until PK's daily total oil production equals or exceeds 1,000bopd on average over a
30-day period at which point 1/3 of options are granted. Next, 2,500bopd over a 30-day period releases
1/3 and for the nal tranche of options, 5,000bopd for a 30-day period is required.

Conclusions:

With all time highs at 33.4p, 25% away at time of writing this 10/08/17, blue sky prices are looking very likely.
AAOG are due to update the market on the conrmed Rig vendor for the drill, by the middle of August.
Then they are due to provide an update on the clean up of well TL-101 buy the end of August, many are
betting that these 2 RNS's alongside the shrinking free-oat and the clearing out of a large seller will
provide the necessary catalysts to break through the all time highs created in March 2017.

After this the Board are expected to announce the schedule for the drilling of TL-103 and the other part of
the work-over on TL-102 which requires the use of the onsite drilling rig, all anticipated for the end of
September.

The board have opted to use Fishbone technology for the stimulation of TL-103 and potentially for the TL-
102 work-over as well. The drilling of TL-103 is anticipated to take around 45 days.