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Bargain shares: Speculative high return trading opportunity

Next month's appraisal well results from an African-focused transitional energy group have potential to send its share price surging
Bargain shares: Speculative high return trading opportunity
  • Memorandum of understanding for offtake agreement with an international energy group for Anchois Gas, Morocco.
  • Excess gas can be sold through the European spot market through the Maghreb-Europe Gas Pipeline.
  • Anchois gas appraisal well on track to spud in December.

Aim-traded African-focused transitional energy group Chariot (CHAR:8p) has signed a memorandum of understanding for an offtake agreement with an international energy group in respect of its flagship Anchois Gas development, offshore Morocco.

The future gas sales agreement (GSA) will be 40 million cubic feet per day (mmcfd) for up to 20 years on a take or pay principle. Analyst Jonathan Wright at house broker finnCap believes this is sufficient to underpin the economics of the project, adding that the GSA is expected to be priced in the US$7-$11 per mcf range normally seen in Morocco, and excess gas can be sold through the European spot market through the Maghreb-Europe Gas Pipeline. Given the ongoing energy crisis in Europe, I would expect EU countries to be queuing up for a reliable source of energy when first gas comes on stream in 2024, assuming all goes to plan.

Key to the project’s future is the Anchois gas appraisal well which is on track to spud in December, initially targeting an estimated 361bn cubic feet (bcf) of 2C contingent recoverable resources in high-quality reservoir A&B sands. The well may also potentially test deeper sands which contain 690bcf of 2U prospective resources. Good news on the drilling front would be highly supportive of signing up institutional lenders to finance the capital expenditure (US$350m for Anchois A and B sands) to bring the project on stream. It is also highly likely to send Chariot’s share price rocketing to narrow the massive share price discount to finnCap’s unrisked valuation of £286m (45p a share) for the Anchois A&B gas fields which is based on an US$8 per mcf gas price.

Chariot’s shares have risen 19 per cent since my last article (‘Bargain shares: An African adventure’, 28 September 2021) and the holding has produced a 155 per cent total return (TR) on my 3p a share break-even point if you have been following my recommendations since I included the shares in my 2017 Bargain Shares Portfolio. The TR is ahead of both the portfolio (142 per cent) and FTSE Aim All-Share index (45 per cent).

If you have a higher risk appetite, then the shares offer considerable upside potential in the event of positive news emerging from the Anchois appraisal well next month, albeit any disappointing news would have the reverse effect. Speculative buy.

 

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