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Should I Invest In Solo Oil Plc Now?

oilIt’s a relief to see Solo Oil (LSE: SOLO) throw Aminex (LSE: AEX) a lifeline this week by striking a deal to buy into the Kiliwani North gas development in Tanzania.

Aminex is desperate for cash, and can barely wait for Kiliwani North to come on stream in the first half of 2015, as is currently planned. Solo’s bung of $3.5million for a 6.5% slice of the project is like fresh air to a suffocating man.

Flowing gas is lifeblood to these minnows

The deal holds the promise of further spondulix for Aminex, as Solo Oil has a 45-day option to increase its interest in the project to 13%, at a cost of a further $3.5million. It’s certainly music to the ears of long-suffering Aminex shareholders, and the ants-panted directors there will surely sit more easily now that the long-time Africa-focused firm is back on a more secure financial footing.

Yet the deal promises lifeblood for Solo, too, which is yet another junior oiler with no income, as the prospect of revenue from Kiliwani North will give the firm the means to carry on with its other projects.

It’s no surprise that the two firms are scratching each other’s backs. Solo is already in bed with Aminex with the larger Ruvuma gas project, which Aminex operates.  

Wheels within wheels

Judging by Solo Oil’s list of major shareholders — mostly institutions on behalf of nominee account holders — the firm has a large private-investor fan base. Yet the company is a different beast to Aminex, which gets down and dirty in the style of Red Adair, with oil on its hands and gas in its windpipe.

Solo Oil describes itself as an investment company. As such, it takes its investors money and splashes it around by buying chunks of projects operated by real oil firms such as Aminex. The latest Kiliwani North deal is typical. As well as interests in Africa, Solo Oil also has a Canadian investment, which it’s thinking of ditching due to lack of progress, and a slice of the Horse Hill prospect and associated licences on shore in the UK Weald basin, where drilling has just started.

Solo Oil’s chairman is serial entrepreneur David Lenigas, and those paying attention will recognise his name as a director of small-caps Leni Gas & Oil (LSE: LENI) and Rare Earth Minerals (LSE: REM), which I’ve written about recently. Both those firms are private-investor favourites too — capable of producing the wild share-price swings so beloved of small-cap investment operators like us. In a further twist, we can buy into the Horse Hill project, and other investments, via another vehicle chaired by David Lenigas, UK Oil & Gas Investments (LSE: UKOG).

I think UK Oil & Gas Investments may be flying under the radar at the moment, not least because it morphed from now-defunct serial disappointer Sarantel, which is a bit off putting to say the least! Right now, UK Oil & Gas Investments has a market cap of about £17 million, which compares to Solo Oil’s £40 million and Aminex’s £36 million. It’s probably worth digging deeper to see which of the three firms has the most bang for its buck — in other words, which company’s assets are most valuable.

What next?

Solo Oil’s strategy carries risk. Recently the firm said of its Canadian investment that the operator has been unable to raise the necessary funds to continue the development of the Ausable gas condensate field and no alternative has been found to unlock the potential. That’s grim, and underlines the fact that Solo has no control over operations because it is a passive partner.

A recent example of how ‘partner drag’ can really stuff a share price exists with Trap Oil (LSE: TRAP). The firm’s multiple investments all looked good on paper, but all came to naught as partner after partner backed out of its commitments to progress particular projects. The risk is that Solo is powerless to resist a similar negative outcome.

Solo Oil is an interesting investment proposition, as is UK Oil & Gas Investments and Aminex. I’m, perhaps, most tempted by Aminex, though,  because of its controlling interests and operator status.

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Kevin Godbold  owns shares in Aminex and UK Oil & Gas Investments. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.