A fundraise worth backing

Chariot (CHAR:15.3p), an African-focused energy group developing and delivering transitional energy projects, has raised $15mn through an oversubscribed placing of new shares at 14p. The goal is to fund a drill programme on a new onshore Moroccan licence and for working capital. On the 11 July 2023 record date, existing shareholders are entitled to participate in a one-for-58 open offer that will raise an additional $3mn. I would certainly take up your allocations by the 31 July deadline.

As I noted a fortnight ago, the directors are in the final stages of selecting a farm-out partner for their flagship Anchois gas development project in Morocco. I can now reveal that an announcement will be made shortly, which could materially provide the financing of the development capital to first gas and significantly reduce the risk of dilution to shareholders. I can also reveal that investment bank Societe Generale is in ongoing discussions with a consortium of European and Moroccan banks which have “indicated their appetite to provide debt finance.”

New onshore licence opportunity

Bearing this in mind, the directors expect to be awarded a new onshore Moroccan Licence imminently. The area covered by the new onshore licence is an overlooked, conventional, shallow gas play in a basin with a high historic success rate of 80 to 85 per cent and low development costs. It has geological similarities to Chariot's offshore licences and is located close to existing infrastructure, as well as the planned processing facilities and onshore pipelines for the Anchois gas project.

Importantly, it is close to the industrial offtake market and offers potential to rapidly monetise production through Chariot’s recently announced gas-to-industry partnership with Vivo Energy. Multiple drill-ready prospects have been identified on existing 3D seismic data, and gas and reservoir presence has been proven on-block from previous exploration wells. Drilling one target well could de-risk and unlock a wider group of geologically-linked prospects, too.

Moreover, with rigs available in-country, the plan is to kick start a drilling programme for four wells as soon as possible, targeting high-graded prospects ranging from 8-18bn cubic feet (Bcf) of best estimate prospective resource potential (Chariot preliminary internal estimates). Each well will cost $3mn to drill and should provide an important read-through to the offshore prospect portfolio due to the reservoir fairways that extend across the areas.

Value accretive to shareholders

First gas production from the new onshore Moroccan licence could commence ahead of Anchois development cashflows, too. House broker Cenkos Securities estimates that a 10Bcf onshore prospect at an industrial gas price of $11-12 per million British thermal units could generate gas revenues of $100mn. Analysts at Auctus Advisors estimate that each onshore prospect under the new license has an unrisked value of 2p per share, assuming a similar value per barrel of oil equivalent as for Anchois and a 25 per cent working interest held by the Moroccan state company. The fundraise clearly makes strategic and commercial sense.

Furthermore, with Auctus risked valuation of $630mn (44p per share) for Anchois’ 2C contingent resources of 637Bcf three times the company’s existing share price, then a successful farm-out and financing of the flagship project should act as a major share price catalyst. Both broking houses have a 60p per share core net asset value valuation. The open offer is worth taking up and the shares, which are marginally below the offer price in my last article, continue to rate a buy.

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■ 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. The books are  priced at £16.95 each plus postage and packaging (P&P) of £3.95 [UK], or both books can be purchased for the promotional price of £25 plus P&P of £5.75.