Africa New Energies Fundraising
Africa New Energies (ANE) has exploited innovative fundraising techniques to help raise the tens of millions of dollars needed to develop its Namibian concession, led by a management team with a background in renewable energies.
As an early-stage start-up, ANE is beyond the mandate of traditional sources of funding such as private equity, a listing on a public stock exchange or an institutional investor. Consequently, the company has had to be nimble and resourceful in finding the funding it needs to develop and grow.
ANE has responded to this challenge in three ways. By using alternative funding techniques – including crowdfunding and partnering with the Aziza Project cryptocurrency – social media marketing techniques, and local knowledge, ANE is showing that the oil and gas sector can be tapped by ambitious start-ups with a track record for innovation and strong community backing.
£8.6 million ($11.15 million) raised and rising
Since ANE began its crowd-funding campaign in 2015, almost 400 investors have decided to back the project. When all grants, consulting profits and research and development tax credits are included, ANE has raised £8.6 million ($11.15 million) to date for a project that most industry experts said was unfundable.
This investment has been deployed to develop the seventeen-layer algorithm ANE uses to indicate the presence of oil and gas. This was achieved using techniques including satellite remote sensing, airborne surveys and surface layers of evidence such as geochemical analysis, which indicated 32 potential oil fields with a gross unrisked prospective resource of 1.6 billion barrels of oil equivalent (boe) – about 25 times what Namibia needs to become electricity self-sufficient.
This means that the prospective hydrocarbon resource in the Kalahari has the potential to help Namibia’s neighbours as well. Zimbabwe, Angola, Zambia and Botswana – all members of the Southern African Power Pool, Southern Africa’s regional grid – all face crippling electricity shortages.
It is important to understand the financial context in which ANE operates. The company has done extremely well in the current environment to raise £8.6 million from a variety of sources, without undue dilution.
Escaping the ‘Valley of Death’
However, ANE finds now itself in what is known as a ‘Valley of Death’. This description refers to the fact that while the UK has one of the most enabling environments in the world for angel funding, once £5 million has been raised – the annual Enterprise Investment Scheme limit – the company is too big for small angel investors, but too small to attract institutional investment where less risk is tolerated.
Companies from every sector face this problem, the oil and gas sector is by no means unique. Where the oil and gas sector finds life to be challenging is the fact that it requires vast amounts of capital to become cash flow positive.
With international oil prices falling from a high of $127 in 2013 to a low of $27 in 2015 – leading to a situation in which 60% of US rigs lay idle – sentiment towards the sector is negative. With oil prices recovering to more than $70 a barrel by mid-2018, this sentiment is slowly beginning to change.
ANE faces a further challenge that is specific to its circumstances. It is using technology that institutional investors do not understand, and drilling in a location that is more than 1,000 miles from the nearest proven hydrocarbons deposit (Mozambique). Its team are mathematicians rather than geologists, so institutional investors would find its offering beyond their mandate. If ANE is to succeed in finding oil and gas, it first needs to succeed in finding an unconventional funding mechanism to fund its targeted 10-well drilling programme.
ANE is proud of the fact that it has tapped investors for a minority of the funds that have been invested in the exploration programme and technology development to date. In fact only 29% or £2.5 million of the £8.6 million raised so far has been from crowdfunding investors. The rest has been funded from the owners liquidating properties, grants, research and development tax credits, grants, sale of intellectual property and consulting, and skills swaps.
For every £1.00 raised from EIS investors, the company has sourced £2.44 from other sources. Apart from high corporate finance costs – which are unavoidable due to the highly regulated nature of fund-raising, the technology has reduced costs. Peter Hutchinson, the former chief geologist for BP North America, estimates that a typical exploration programme involving traditional seismic-dominated approaches would have cost $50 million to get to this point, with lower probabilities of success.
The Chinese bid
In January 2017, ANE received an unsolicited bid valuing the company at $500 million from a US-based private equity company, with the backing of an Asian state-owned oil company.
But the terms for the majority stake were unfavourable to the sustainability of the concession and to the people of Namibia. The bid was, therefore, rejected and superseded by a more innovative fund-raising model – the Aziza Project.
ANE is currently working with the Aziza Project to raise $60 million, $45 million of which will be used to complete a ten-well drilling programme, as well as completing the final stages of the pre-drilling programme launched in 2013.
Partnering with the Aziza Project
The Aziza Coin is an asset-backed security token being issued by the Cayman Islands-based Aziza Project, and is compliant with the Ethereum blockchain’s ERC20 standard. The token derives its worth from the value of assets – including 20% of ANE – held by the Aziza Project. The Aziza Project, through the sale of Aziza tokens at an Initial Coin Offering (ICO) in the final quarter of 2018 – with a private sale beginning in September – is seeking to raise $60 million.
ANE’s ten-well drilling programme is a high-risk, high-reward investment and a long-term business case. Assuming the ICO is successful and the $60 million is raised – $45 million of which will be allocated to ANE – there will be additional funding requirements as the project develops. Being able to commence the drilling programme will, however, represent a huge milestone in the ANE story.