- Several third-party farm-out offers to fund Anchois project
- Chariot progressing towards binding GSA offtake
Chariot (CHAR:15.8p), a £152mn Africa-focused energy group developing and delivering transitional energy projects, is in the final stages of selecting a farm-out partner for its flagship Anchois gas development project in Morocco.
Around 40 companies accessed the data room and I understand that multiple offers have been received from significantly larger exploration and production companies, according to the company. Chariot has already spent $50mn (£39.2mn) on the project and the board anticipates “retaining a material stake in the licences and a [significant] upfront cash consideration”.
Analysts at Auctus Advisors believe that as soon as the details of a farm-out deal are released to the market then it would lead to a material re-rating. That’s because the combination of the carry on the project and upfront cash payment would materially reduce the risk of any significant dilution for Chariot’s shareholders. I completely agree, especially as I understand that some of the potential partners could fund the project from their own balance sheets.
To put the undervaluation of Chariot’s shares into perspective, Auctus has an unrisked valuation of $839mn (£655mn) based on Anchois’ 1C contingent resources of 365bn cubic feet (Bcf) and 2C contingent resources of 637Bcf. That’s more than four times Chariot’s current market capitalisation. In addition, Anchois has 2U prospective resources of 754Bcf, which have a 49-61 per cent geological chance of success, and offers potential prospectivity across its Rissana offshore licence, which has a total 2U prospective resource of seven Tcf and could attract larger players, too.
Gas sales agreements progressing
At the same time, Chariot’s management team is working towards finalising a binding 10-year gas sales agreement (GSA) with the Office National de l'Electricité et de l'Eau Potable (ONEE) to supply up to 60mn standard cubic feet per day (scf) of gas, having reached an agreement in principle with ONEE at the end of last year.
The gas will be delivered on a take-or-pay basis to secure direct domestic supply for Morocco's existing and potentially longer-term gas power plant infrastructure. In May 2023, Chariot announced that it has established a midstream joint venture with Vivo Energy, part of the Vitol Group, to distribute gas to industrial customers.
Analyst James McCormack at house broker Cenkos Securities notes that industrial natural gas demand in Morocco has increased dramatically in recent years, surging from 2,133 to 3,643 Terrajoules from 2013 to 2020, driven by the expansion of heavy industry in the country. It’s worth pointing out too that several European companies, including car maker Peugeot, have set up manufacturing plants along the coast to where the Anchois gas is due to come onshore.
However, while industrial natural gas demand is increasing, supply is decreasing, with the only current domestic natural gas supplier recently announcing a 36 per cent year-on-year reduction in its natural gas production. This favourable backdrop provides a great opportunity for Chariot to become the industry leader, providing Anchois gas into this high-demand, rapidly growing market. Furthermore, Anchois has an additional 45mn scf of spare ullage, of which some of the spare capacity could be used for export into the European gas market through Spain.
The signing of a binding GSA with ONEE is critical as it will underpin project financing and allow additional expansion as the project develops. Having previously appointed investment bank Societe Generale to lead the structuring and syndication of debt financing, the project has received wide interest from several Moroccan and European banks.
Deep share price discount to core NAV
Chariot’s share price has moved sideways since I highlighted the progress the group has been making on multiple green energy projects (‘Good news will boost this green energy company’, 3 February 2023), albeit the holding is still showing a healthy 415 per cent return in my 2017 Bargain Shares Portfolio.
Trading on a steep discount to analysts’ core net asset valuations of 65p, and with an Anchois farm-out firmly on the cards, the shares are well worth buying.
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