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Hi Dgdg1
This is the weakest time of the year for gas prices, so to get a more accurate assessment look at the forward market for Spain for 2024 which is currently approx $13.20 mcf, so the landed price in Morocco is likely to be in excess of $14.00 mcf,
At present european gas prices are determined by USA lng prices which are expected to increase as China demand comes back after the covid lock-ins.
Clearly the value of chariot is dependant on the gas price and gas volumes, I think it’s highly likely that 150 mmcf per day will be reached after about three years but starting at 105 mmcf initially , the average price is an estimate but I think $12 mcf seems achievable.
Accordingly, I think your valuation of 30p is too low.
Jimmy
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Continue...
I think Morocco are more likely to take a sensible approach in securing gas from within their own borders (for which they will still pay a comparatively low price for) than to gamble with European spot pricing and hope Spain has enough processing ability to feed them some of their re-gassed LNG, as well as having enough capacity to feed Europe too.
Realistically, I think the way Morocco sees it, without having their own in-country supply, they are vulnerable to future high prices and rug-pulls (and why they were forced into paying $35.55/mcf for gas this time last year). The reason they had to go begging to Spain for this expensive LNG converted gas, was because they fell out with Algeria who promptly cut them off from the only pipeline that feeds the country.
The bigger picture goes way beyond the current spot price.
Dgdg1,
Lots of if/whats/maybes to digest in your posts but also some legitimate concerns too. Glad to see some constructive opposition.
I think if there was ever a possibility of Nord Stream 2 coming back online in the future to supply Europe with gas – they probably wouldn't have blown the thing up.
Regardless of what the west thinks about Putin, the majority of Russian people seem to support him and his invasion of Ukraine. He's been in power for 23 years, That will change at some point in the future, but even when it eventually does, I don't think Europe will go back to relying on a country that's now clearly its enemy, to supply it with gas. Putin could go on for another 8-10 years and even when he does eventually step down, how do you know his replacement will be any more friendly to the west?
After Europe banned Russian gas last year (once they had filled up their strategic reserves) they resorted to buying LNG from America at $3 above spot + de-liquefaction costs (I posted an article on this if you care to go back and look). In combination with full reserves and a mild winter, the European LNG re-gassing processing plants were able to cope with relatively small volumes of LNG processing, but if the European winter had been a cold one, the scenario would have been very different. Either way, Europe wasn't paying spot price for its gas then and won't be in the future. Contractual rates are usually priced off the futures market rather than the spot price (which changes daily).
Anyhow, even during last year's mild European winter, what was Morocco paying Spain for its gas (who in turn were buying it from the US in LNG form)? They were paying €113.53 per Mwh which equates to €32.92/mcf or $35.55/mcf.
See here: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/natural-gas/062922-spain-begins-gas-re-exports-to-morocco-via-gme-pipeline-enagas
Currently, as it's summer and power usage is low, the spot price is also very low. Spot wholesale pricing is around €30 per Mwh which works out to be around $9.40/mcf.
If you read through Chariot's presentation and annual report, they have worked out the viability of the Anchois project at $8/mcf. One presumes they have communicated this as a key principle with ONHYM whom they are in discussions with over a long term gas sales agreement.
Morocco could try and gamble with buying nat gas from the European spot market and hope that this current period of high inflation is over (I don't think inflation is over, I think it will stop and start in waves over the next decade), but I suppose that could be a tactic they decide to gamble on.
But I think they're more likely to take a sensible approach in securing gas from within their own boarders (for which they'll still pay a comparatively low price for) than to gamble with European spot pricing and hope Spain has enough processing ability to feed them some of their re-gassed LNG (as well as supply Europe too
My issue is that this share was previously seen as a no-brainer deeply undervalued share. It may still be undervalued but it's certainly a lot less simple as the European price is much lower and could go lower, so it mainly comes down to trying to work out how much gas they could sell in Morocco and at what price. This requires an in-depth analysis of the Moroccan market to try to form a judgment on what long term sales price they could get and for how much volume, which in turn depends on all sorts of factors, like knowing what is happening in the power market and industrial market in Morocco with respect to both supply and demand - so basically it gets quite complex unless you have a deep understanding of those markets and how they could potentially interplay with the European price etc. We can dig up information about new demand like the new gas-powered station, but then again do we know how much more supply is expected over coming years etc and how all possible factors will ultimately determine price? I personally find it difficult to be confident that I have understood all the relevant factors here, so for me the share doesn't have the attraction that it originally did as an obviously deeply-undervalued share.
Jimmy, thanks, will look into this. What do you think about my valuation estimate?
Hi Dgdg1
The reference to the new power station conversion is at the link below, a 900 mw power plant.
Jimmy
https://www.africa-energy.com/news-centre/article/morocco-onee-tenders-900mw-gas-fired-power-plant
Hi Dgdg1
I read this about four weeks ago. I will try to find the source and revert . What it means is that moroccon demand will increase.
Jimmy
Jimmy, when was this announcement made and where, and are you saying they can sell all 105 (and potentially more) to the power sector, and none to Europe or industry? On that basis they didn't need to do the JV with Vivo?
Morocco previously announced they are converting another power station from coal to gas, so the power demand will increase to 150 mmcf per day and prices likely to be in the range of $8 to $10 per mcf.
The relevant price competitor in Morocco is to replace dirty coal.
Jimmy
BDC, re the future European price I am simply saying that as I understand it before the Ukraine war the prices were 10-15 euros/MWh which is about $3.20-$4.80/mcf or say $4 on average. Now they are down to 29E/Mwh or $9.20. But who is to confidently say what they will be in 2-3 years with Russia - Putin could be deposed, or an agreement reached. Self-interest on both sides has a way of asserting itself eventually, one way or another. Nordstream could certainly be repaired if both sides wanted it. Yes it might not happen but it hardly seems sensible to count on it, it seems far more sensible to work on the basis that prices will normalise over the next few years, somehow.
Excess gas that can't be sold to Moroccan power or industry (because there's too much of it and not enough industrial demand or too much competition from other sellers, like Predator), will have to be sold to Europe at whatever the price is. So there isn't a lot of clarity on how much of the gas would have to be sold to Europe, or at what price. (And I suspect the Moroccan price may also come down with all the supply available from Chariot and Predator and anyone else.) The sale to industry in Morocco is also being done by a JV so the partner would take their share of the profit, presumably 50%, so a high achieved price there loses its shine. A GSA will presumably be set at the expected average spot price so unlikely to be much more. I suppose you could argue if someone signed one now they might base the price on the present, higher price, but does anyone have any proper experience or knowledge on this? I actually think that there wouldn't be a rush to sign for a large amount now for a multi-year period, with prices coming down. I don't have any deep knowledge of how these things are done but that's my layman's guess and would be happy if there is any information to clearly contradict any of this. Basically all these points chip away at this assumption that Chariot is worth £1 (as previously touted on this forum) or at least 50p (as valued by analysts previously).
Actually I thought Jimmy made some good points, particularly that I seem to have over-stated the cost of each extra mcf of gas, so having rejigged the capex and opex figures based on the 12.2022 presentation I now think the fair net present value is probably more than 13p, but I still don't think it's 50p - it may be about 30p, but in my (limited) experience the market does seem to have a tendency to knock off about a half from so called net present values, which means the present price is about what one would expect. (By the way in getting to that figure I allowed for half the extra value of the possible extra gas at Anchois, as they have given it a chance of success of 49-61%, but also assumed it would have to be sold at low European prices). I haven't allowed for the Rissana volumes as they have only about a 20% chance so it seems prudent not to count it, although there obviously is some value there in reali
BDC, nothing like shorting your granny ffs..Dg,glad you're not easily deluded or inclined to be swayed by that drivel..Time will tell if your incline to sell is the best option, am still on the side at present. Good luck in your decisions 👍👍
Dgdg1,
Be careful trying to assume margins based on current spot prices.
Europe, particularly the industrious North, doesn't use much in the way of air-conditioning, even in the summer, but it uses massive amounts of gas for heating during most winters. The winter just gone was a bit of an anomaly as it was quite mild across most of Europe.
The reason GSA's are signed is because it gives reassurance and stability of price to both buyer and seller. It doesn't matter if the spot price of gas goes back up to $48 mcf next winter or if it drops to $6.50 for a few months during summer, if you've signed a GSA for $14 or $12 or whatever, that's what you'll pay for the gas.
I would understand if (on release of the GSA) you felt the price agreed (under the GSA) was poor based on your projections of future profits. But to sell out based on the current spot price during a spell of mild weather, post a mild winter, is, in my opinion, a rather hasty move (you did ask for opinions).
To your other fear; even if there was a ceasefire in Ukraine, I can't see Europe buying Russian gas again as Putin would use the money to re-arm. The Nord Stream 2 pipeline is no more because someone (cough, America, cough) blew it up.
A GSA of $6/mcf would equal a SP greater than 13p (not sure how you arrived at that figure), even so, I don't think Chariot would sign for that. Let's not forget, Morocco was buying LNG from Spain less than 11 months ago for Euro 113.53/MWh after Algeria cut it off from its Nat Gas supply after a territorial dispute over the Western Sahara region.
The GSA is not just going to be based solely on price (although, of course price is an important factor). The GSA needs to be a win-win for both Morocco AND Chariot.
Morocco needs sovereignty of supply to come from within its own boarders. Chariot needs to make a ROI in order to make the extraction and delivery of all this gas possible.
Hi Surfit, yes . I get that there are associated opportunities for gas suppliers in North Africa such as water, fertilizer and hydrogen production. Also understand the need to involve and diverse into green energy. Perhaps there are some quid pro quo deals in there?
This companies ambition and confidence is high. If they reach the heights they are aiming for great, but your right we need some numbers.
Hi Speculiar,
When you say start up venture are you referring to the renewables side....if so: Fully agree, we can see a clear path on the gas side....up to a point I.e. further field development tbc.
AP when asked at the QnA (not the previous, but one before) verbal confirmed he/they will not ring fence the gas returns. So that indicates CHAR side of it will probably be partly used in the renewables/hydrogen arms?????
I am really hoping that they do actually present at some point VERY soon a clear plan both development and financial (costs and then raising) for that side of the business.
This is (imo, as per broken record usual) the reason why we do not have ii getting onboard (yet?). An investment manager/broker has to see numbers and returns other wise they would be liable for mismanagement of funds.
CHAR management have not given any as yet, have burned investors money since inception, not made a return on any investment since inception and significantly diluted the share price by raising funds or buying other new and small African "companies" along the way.
CHAR would be dead in the water if one of the team (not sure who) had not bought the gas assests.
So as per above, we need to know ( as we are all aware of course) the numbers for the gas contracts and development, type and cost of capital/fund raise that's for just the gas side. Then of course the renewables/hydrogen side (as said) thas has not been financially presented accurately enough for the ii's
So hence imo the sp is assessed to be where it should be by the market....untill the market get the accurate information and contracts signed.
GLA
Rgds Sft: Standing by to stand by
Gas demand is not going to drop anytime soon imo. Morocco's industry conversion plans are extensive and its domestic demand is set to grow. All that will happen without a gas agreement from Russia to the EU, again imo, due to the lack of security for the EU energy market. I won't consider the Nigerian pipeline as part of the argument yet.
As previously stated the market now is usually low.
I'm no expert on start up costs, but those who are have discussed it, and they mention the relatively short pipeline and quality of gas, as major cost savings compared to "normal".
My concerns are the startup costs of the ventures depending on this working.
GLA DYOR
The forward price of gas in Spain for 2024 is €45.86 per mwh, substantially higher than current spot prices which are typically low at this time of year.
Jimmy
“The bottom line is that Chariot may still be a buy but I don't think it's as underpriced as people (and myself previously) were assuming”
Good post and spot on.
Imo it’s a bargain as much as it is a risk?
We can all do our research and spin our own price targets but we are obviously at fair value right now.
GSA sign off is taking a nervously amount of time to get signed off too?
I’ll be up at 7am tomorrow morning as usual wishing for the next game changing RNS.
Jimmy, yes you may be right re the incremental cost of the prospective resources, if so that's a fair point.
As mentioned, it's not clear how much could be sold to industrial users. In any case I do think that taking everything together the analysts should produce a new realistic valuation taking into account what exactly could be sold to who and at what price (and when), taking into account the total market demand in Morocco and the fact that Chariot will be in competition with Predator. Also, it would be nice to have a real calculation of the potential profitabilty of the prospective resources if European gas prices normalise. The bottom line is that Chariot may still be a buy but I don't think it's as underpriced as people (and myself previously) were assuming.
I will be honest with you that I sold my Chariot shares on Friday due to my questions referred to here (no I am NOT short). I would be happy to buy back if someone can convince me that I got this wrong. By the way I was looking at the Predator presentation, where they mention a price of $14/mcf. They also say on page 14 "Current potential market sizeup to 50 mm cfg/day". On page 16 they model the 34mmcf/d which they are hoping to supply at $14/mcf as producing a net profit of $66m after tax, which works out at $5.32/mcf ($66m/(34000*365)), and seems to mean there are high capital or operating costs. Assuming similar for Chariot even at $14 but a profit split then Chariot's profit margin would be $2.66/mcf. They seem to be assuming low capex but not sure how comparable this is to Chariot's costs. In any case I would point out though that it all means they will be in competition with Chariot to sell the gas to industrial usersm which may push the price down.
Dgdg.
I can only reference the published information to try to ascertain what’s going on.
Predator estimate the cng market in morroco at 50 mmcf per day. Initially predator are looking at 10 mmcf per day and further volumes dependant of further drilling success. As stated previously they estimate the price at $14 mcf, which as you state is in excess of $12 mcf that sound energy are selling, but that’s via the pipeline as compared to other customers not connected to the pipeline who are the focus of the cng.
I expect chariot to produce at 150 mmcf per day after they drill the deeper O sands as part of the anchois development wells, and the incremental cost of producing that extra 50 mmcf per day will be tiny, but still very profitable if exported at lower prices in Europe if they have to.
Jimmy
Dg, are you the seller?
Jimmy, also do you have any comment re the issue I referred to in my original comment that the potential extra trillions of cubic feet could not be sold in the short term other than to Europe at a lower price which could potentially be unprofitable?
Jimmy, thank you for pointing that out, I had neglected the new JV announced on 2.5.23 with Vivo. I would note though that it isn't clear how much of the 45 mmcf will be sold to industrial customers and how much will therefore have to be sold to Europe. Cenkos said "Beyond, the 60MMscf/d allocated to the Moroccan domestic power sector, the 105MMscf/d Anchois nameplate capacity provides 45MMcf/d of spare ullage. We expect this excess ullage will be divided between supplying the Moroccan industrial sector (as per today’s announcement) and for export into the European market (via Spain)." - but they haven't specified how much goes where - what is the basis of your confidence that it will "mostly" be sold in the local market? Also, Auctus said "As illustrated by the prices achieved by SDX (~US$12/mcf), the domestic industrial market can be very lucrative." - so they are talking about $12, as opposed to the $14 that Predator aspire to and you refer to. Also, given that it is a JV doesn't that mean the profits will be split - I assume evenly though to be honest I didn't see the company actually say it was 50-50 but isn't that normal? In which case it would be equivalent to selling at maybe $8? Admittedly better than potentially selling at $4 in Europe (if prices normalise), but again it means the average selling price is not clear, especially as we don't actually know how much would be sold to industry as mentioned.
Please comment.
Dgdg1,
Chariot will in the first instance sell its gas for moroccon power generation and hence reduce moroccon dependancy on dirty coal for power and reduce co 2 emissions by circa 55% by doing so. Before Ukraine war, the price was $8 mcf and this will be on a take or pay basis. This will amount to 60 mmcf per day. The remaking gas will mostly be sold in the local market, probably as cng with its jv with vivo , recently announced. Predator are also targeting that market and they have guided a rice of $14 mcf.
The balance to be sold to Europe.
Hope that helps
Jimmy
Gas prices today are somewhat irrelevant on the basis of
1. We will not have any available to sell for 2 years
2. This is a 20 year investment
The analysts will look at some long term forecasts but even that has a high degree of speculation.