MIDAS SHARE TIPS: Focus on cleaner fossil fuel in Africa

Fossil fuel companies are besieged by critics, but perhaps the loudest opposition is reserved for Africa-focused companies.

Eco-warriors argue that oil and gas exploration and production is exploitation by another name and that any business worth its money should stop what it’s doing — and fast.

Paul McDade thinks otherwise. McDade, former CEO of FTSE 100 Tullow Oil, has worked in the oil and gas industry for 35 years, including nearly two decades in Africa. He understands the continent and the role energy plays in helping Africans improve their lot. That is why he founded Afentra – an abbreviation for ‘African energy transition’.

McDade’s mission is to buy oil and gas assets already in production, make them as safe and environmentally friendly as possible, and employ local people for their benefit and the company’s.

Afentra shares are 25p and should rise significantly as McDade executes on his strategy.

The first signs are encouraging. Afentra was born out of a quasi-acquisition of Sterling Energy, a small energy company that needed a change of direction. In the spring of 2021, McDade was parachuted into making that change.

Within months, he and his team had struck a deal: 20 percent of a leading oil field just off the coast of Angola.

State energy conglomerate Sonangol wanted to cut its 50 percent stake in the field, known as Block 3/05 – Afentra was keen to buy. Like almost everything in Africa, the transaction took longer than expected. Finally signed last April, the deal has since been postponed.

Meanwhile, McDade acquired another 4 percent of the bloc from INA, a state-backed Croatian energy company. Now the end is finally in sight. The INA sale should be completed in a few days, Sonangol is expected to follow in June and Afentra will then start making money. Block 3/05 produces nearly 20,000 barrels of oil per day, so Afentra’s position will be around 5,000 barrels per day.

However, under the terms of the Sonangol and INA deals, Afentra is entitled to oil accrued since a certain date in their negotiations – counterintuitively, September 2021 for INA and April 2022 for Sonangol.

The agreements mean that McDade will ultimately pay significantly less upfront cash than he would have if the deals were completed right away. And he has had ample time to plan how to increase the production of the block.

Up to 30,000 barrels per day are in Afentra’s sights, thanks to modern extraction techniques and more proactive management. There are also clear opportunities to make the Bloc more environmentally friendly, including by reducing gas flaring, which releases greenhouse gases into the atmosphere.

McDade and his team are also looking at other transactions, several are in the pipeline, and the hope is to achieve a daily production of tens of thousands of barrels in the coming years. Crucially, however, Afentra is targeting mature assets, fields that are already up and running but that can do better and get cleaner.

Brokers expect revenues of around $60m (£48m) this year, rising to nearly $100m by 2024. Profits of around $22m are forecast for 2023, with further growth for next year.

Midas verdict: Fossil fuels are polluting the planet, so both consumers and businesses need to switch to renewable energy. But the transition will take time and should be treated with sensitivity. McDade is committed to doing just that at Afentra, with benefits for shareholders, customers and African communities. At 25p, the shares are a buy.

Traded on: GOAL ticker: AET Contact: afentraplc.com or 020 7405 4133