Six months ago I turned buyer again of the Aim-traded shares of Chariot Oil & Gas (CHAR:3.4p), a £12.5m market cap oil exploration company with activities in Morocco, Namibia and Brazil, after the company had been awarded a 75 per cent interest and operatorship in the Lixus Offshore Licence, Morocco, in partnership with state-owned oil company Office National des Hydrocarbures et des Mines (‘Chariot’s North African adventure’, 17 April 2019).
One reason for turning bullish is that the company’s latest net cash pile of $12.1m (£9.75m) substantially exceeds the $1m cost of its current work commitments, leaving exploration upside from its prospects in the price at a rock bottom valuation. Bearing this in mind, the company has moved quickly to capitalise on the potential of the Lixus licence, which includes the Anchois gas discovery, located 40km offshore in 388m-deep water, and is 30km north of Chariot's existing Moroccan acreage.
Within three months of acquiring Lixus, Chariot’s team re-evaluated significant quantities of 3D seismic and well data; commissioned an independent analysis on the technical feasibility of an Anchois development; and instructed a detailed analysis of the Moroccan gas market to confirm the commercial potential of the project. The company also commissioned independent third-party Competent Person's Reports on the recoverable resources identified within Anchois and its satellite prospects. These reports confirmed a near-term development opportunity with over 1 trillion cubic feet (tcf) of 2C contingent resources and 2U prospective resources, and a further 1.2tcf of 2U resources on five further identified prospects within the block.
In terms of developing the Anchois Field, independent analysis showed that development is technically feasible, offering potential for either a single phase or a staged development to commercially optimise access to different parts of the gas market. Options include a "subsea-to-shore" concept, consisting of subsea production wells tied to a subsea manifold. A subsea flowline and umbilical connect would then connect the field to an onshore central processing facility from where it is delivered into the Maghreb-Europe Gas pipeline via an onshore gas flowline. It’s worth noting, too, that there is potential to re-enter the suspended Anchois-1 gas discovery well, which may be completed as a producer well.
Chariot then initiated a data room in order to secure partners to progress the development, and reports significant industry interest to facilitate the Anchois appraisal project that, subject to partnering, is expected to commence in 2020. Chariot also has a data room open for its other Moroccan offshore licences in which it retains a 75 per cent interest: the Mohammedia prospect MOH-B (gross mean prospective resource of 637m barrels); and Kenitra licence prospect KEN-A (gross mean prospective resource of 445m barrels).
The point is that success with any of these data rooms should fund what could be transformational drilling programmes, and potentially as early as 2020. It’s also worth flagging up that a number of third-party wells are expected to be drilled off the coast of Namibia over the course of the next year, including one that I understand is adjacent to Chariot’s PEL-71 Central Blocks acreage in which it is operator and has a 65 per cent interest.
The bottom line is that with Chariot expected to end 2019 with net cash of $10m (£8.1m, or 2.2p a share), and analysts valuing the company’s exploration portfolio at £151m (40.8p a share) on a risked basis, of which 60 per cent relates to the Anchois prospects, then a successful farm-out on any one of Chariot’s prospects has potential to propel the share price northwards.
I first advised buying Chariot’s shares at 8.29p in my 2017 Bargain Shares portfolio, booked profits on two-thirds of the holding at 17.5p ('Bargain Shares on a tear', 3 April 2017), participated in the one-for-eight open offer on the balance (‘On the earnings beat’, 5 March 2018), and then maintained a watching brief until mid-April this year when I suggested investing some of the hefty profits banked to buy back in at 4p (‘Chariot’s North African adventure’, 17 April 2019). I maintain that stance. On a bid-offer spread of 3.2p to 3.4p, Chariot's shares rate a speculative buy.
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