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Bargain Shares: Hitting pay dirt

Drilling results from an African-focused energy group materially exceeded expectations and support the commercial development of its Moroccan offshore licences
Bargain Shares: Hitting pay dirt
  • Anchois-2 well encounters high-quality gas reservoirs with net gas pay of more than 100m
  • Analysts double risked-net asset value (NAV) and price target to 54p
  • Similar material exploration targets with an estimated 2.45 tcf of potential resources not included in valuation

Aim-traded African-focused transitional energy group Chariot ( CHAR:10.75p) has announced drilling results which “materially exceed the directors’ expectations” at its flagship Anchois Gas development, offshore of Morocco.

The Anchois-2 well has encountered multiple high-quality gas reservoirs with a calculated net gas pay totalling more than 100m, or almost double the level in the original Anchois-1 discovery well. Net gas pay is a key parameter in reservoir evaluation as it identifies penetrated geological sections that have sufficient reservoir quality and interstitial hydrocarbon volume to produce commercial quantities of hydrocarbon.

Analysts at house broker FinnCap note that Chariot estimates that the Anchois B sand prospect has a calculated total net gas pay of more than 50m in two stacked reservoirs of similar thickness. The upper reservoir is a continuation of a reservoir drilled in Anchois-1, with the lower reservoir being newly identified. It suggests upside potential to the 247bn cubic feet (bcf) pre-drill 2C contingent recoverable resource estimate in the high-quality reservoir given it has a 3C resource estimate of 375 bcf. To put this into perspective, FinnCap’s risked valuation of the combined 361 bcf pre-drill A and B sands 2C resource is US$215m (19p a share), but if the B sands 3C resource is assumed then the brokerage’s valuation rises to US$300m (27p a share).

Simon Thompson's 2017 Bargain Shares Portfolio performance
Company nameTIDMOpening offer price on 03.02.17 (p)Bid price on 10.01.22 (p) or exit price (see notes)DividendsTotal return (%)
Kape Technologies (formerly Crossrider)KAPE47.94203.55784.2
BATM Advanced Communications (see note seven)BVC19.25810351.8
Chariot Oil & Gas (see note one)CHAR8.2910.750254.8
Avingtrans AVG20041011110.5
Cenkos Securities (see note two)CNKS88.4251069.530.6
Manchester & London Investment Trust (see note three)MNL291.653773.028.4
H&T HAT289.7528643.913.9
Management Consulting Group (see note five)MMC6.18360-3.0
Bowleven (see note four)BLVN28.95.515-6.1
Tiso Blackstar Group (see note six)TBG5520.40.54-61.8
Average    150.3
FTSE All-Share Total Return  64858435 30.1
FTSE AIM All-Share Total Return 9771371 40.3

Notes:

1. Simon Thompson advised selling two-thirds of the Chariot Oil & Gas holding at 17.5p on 3 April 2017 ('Bargain shares on a tear', 3 April 2017). Simon subsequently advised participating in the one-for-eight open offer at 13p a share ('On the earnings beat', 5 Mar 2018) and buying back the shares sold at 4p ('Chariot's North African adventure', 17 April 2019). Simon then advised taking up the one-for-six open offer at 5.5p ('Exploiting margins of safety', 1 June 2021). Total return reflects these transactions.

2. Simon Thompson advised selling the Cenkos Securities holding at 106p on 3 April 2017 and the 106p price quoted in the above table is the exit price on the holding ('A profitable earnings beat', 3 Apr 2017). Please note that Simon has since included the shares in his 2020 Bargain Shares Portfolio and rates the shares a buy.

3. Manchester and London Investment Trust paid total dividends of 3p a share on 2 May 2017. Simon Thompson then advised selling half of the holding at 366.25p on 26 June 2017 ('Top slicing and running profits', 26 June 2017), and selling the remaining half at 377p ('Bargain shares second chance', 17 August 2017). The 377p price quoted in the table is the final exit price.

4. Simon Thompson advised banking profits on half your holdings in Bowleven at 33.75p (‘Hitting pay dirt', 9 Apr 2018). The company subsequently paid out a special dividend of 15p a share on 8 February 2019 and the balance of the holding was sold at 5.5p ('Taking stock and profits', 9 December 2019).

5. Simon Thompson advised to sell Management Consulting's shares at 6p in February 2018 (‘How the 2017 Bargain share portfolio fared’, 2 February 2018). The price quoted in the table is the 6p exit price.

6. Tiso Blackstar transferred its UK listing to the Johanesburg Stock Exchange. The shares were then delisted on 23 November 2020 when shareholders received an exit cash payment of R415 per share on cancellation of their shares.

7. Simon Thompson advised banking profits on half your holdings in BATM shares at 49.9p ('Bargain Shares: Exploiting pricing anomalies and top-slicing', 3 December 2018) and subsequently bought back the shares at 43.5p ('BATM armed for a re-rating', 11 July 2019). 

Source: London Stock Exchange.

The news gets even better because the well also explored the deeper C, M and O prospective sands and was successful at all levels, encountering multiple gas-bearing intervals across 250m with no water-bearing reservoirs identified. Pre-drill mid-case prospective resource estimates for these three prospects was 543 bcf. However, fully geologically de-risked, and assuming 50 per cent commercial risking to account for partnering, and finnCap’s pre-drill valuation of US$43m on the C, M and O prospective sands rises to US$322m (29p a share).

So, with development funding interest high, an offtake agreement with an international energy group announced last autumn, and excess gas to be sold into a tight European gas market through the Maghreb gas pipeline, the latest drilling success significantly enhances the project’s development prospects with first gas pencilled in for 2024.

Although FinnCap doubled its risked-NAV estimate to 54p a share, analysts have not included any value for numerous similar material exploration targets on the licence which have an estimated 2.45 tcf of potential resources.

The holding has produced a 255 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 price has also surged from the 8p level after I highlighted the potential for Chariot to hit pay dirt last autumn (‘Bargain Shares: Speculative high return trading opportunity’, 5 Nov 2021). It could double again once investors cotton onto the implications of the latest drilling news. Buy.

 

■ Simon Thompson's latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £3.25 [UK].

Promotion: Subject to stock availability, the books can be purchased for the promotional price of £10 each plus £3.25 postage and packaging, or £20 for both books plus £3.95 postage and packaging

They include case studies of Simon Thompson’s market beating Bargain Share Portfolio companies outlining the investment characteristics that made them successful investments. Simon also highlights many other investment approaches and stock screens he uses to identify small-cap companies with investment potential. Details of the content can be viewed on www.ypdbooks.com.