From RBC

Africa Oil (AOI.V): Operating update and help from Tullow Oil

Africa Oil closed up ~2% yesterday, after shaking off a lacklustre production test on the Etuko-1 discovery well; the well flowed at a cumulative rate of 550b/d from three zones. Given the poorer reservoir qualities encountered in the two wells drilled on the Rift Flank play (as opposed to more productive String of Pearls play) this result had been widely flagged by the participants.

The oil-bearing zones within the shallow, better quality sands Auwerwer sands could not be tested due to equipment issues, and a dedicated shallow appraisal well will be drilled shortly.

Africa Oil should gain a shot in the arm from Tullow’s commentary at yesterday's FY13 Results.

Presentation that the laterally extensive sands in the subtle, low relief structures in the Rift Flank play may all be full of oil, contributing to a huge volume of oil-in-place. In our opinion, discoveries in this area could add substantially to the resource play within the basin, and add longevity to the productive life of the Lokichar Basin.

Africa Oil plans to complete 20 exploration and appraisal wells in 2014, including extended well tests on the South Lokichar basin discoveries, and exploration wells targeting four new basins.

The next result will likely come from testing operations on the Ekales oil discovery that are expected to conclude by the end March.

We include upside/risk of +C$0.17/-C$0.14 per share for this well in our *C$15.32/share NAV. The Emong-1 exploration well spud in February, ~6km west of Ngamia-1 and is targeting ~240mmbbl. It is expected to take ~40 days to drill; this well could add *+C$1.01/share to our AOI NAV on success.

Three planned appraisal wells on the large Twiga South oil discovery will start in mid-February and target the structure’s up-dip potential.

The Twiga South is estimated to hold *130mmbbl, and a successful appraisal campaign could *double this figure.

We include upside/risk of +C$1.10/-C$1.11 per share for this 3-well appraisal campaign in our NAV.