Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Gooner,
Everyone was hoping for 'an exceptional farm out deal'. What everyone got was 'an exceptional farm out deal on the proviso of 1 more successful carried drill'.
So there's still an element of risk hanging over the final outcome of the deal.
Surety,
The 10% option is meaningfully expensive because the deal very much looks to have been structured that way on purpose. For Energean, there's still a small amount of risk involved in the next drill and the read-through of more gas being correct/incorrect. It looks like they want to be 100% sure. It's my personal opinion that they would like this asset to be a minimum of 1Tcf before they'd be prepared to fund the entire thing.
I have also considered our seller being one of the recent 6%ers giving way. I remember holding a promising AIM tech stock back in 2010 when the only institution also holding it was blackrock. They held a 10% stake and they were... well... blackrock - the largest asset manager in the world by AUM & they held a 10% stake in this promising little AIM tech stock. That's until they sold the lot ~ within the space of about two weeks and the SP crashed to 13p. All the PI's thought something must be very wrong with the company as why would the only institutional investor sell its entire stake?? Talk about lemmings running off a cliff. So many of them sold out in blind panic.
Over the course of the following 12 months the share price climbed to Β£2 without blackrock or any other insti remaining invested. It was a great lesson in doing ones own due diligence for those who sold in panic and also for those who held or kept buying.
$3 million per exploration/developed well within Loukos (Although Duncan's response was a bit wishy-washy). Page 9 of the below presentation shows the existing onshore pipeline infrastructure already in place that feeds the industrial sector. Gas processing is minimal because it's already relatively clean gas out of the ground and the industry standard doesn't require gas to be as high-purity as the gas delivered into the GME needs to be. This looks like it's going to be the more speedy route to revenue generation for Chariot (providing drilling is a success).
https://chariotenergygroup.com/app/uploads/2023/12/Offshore-Partnering-slides.pdf
I was very busy at work yesterday, so rushed through some of the figures in my head. Here are a couple of corrections involving my previous post...
The interest rate on Chariots share of the carry is not 7%, it's 7% above SOFR which has varied between 3-5% over the last 24 months since inflation hit. It's currently at a peak rate of 5.3% (because interest rates are at a peak). Interest rate cuts are anticiapted to begin in 2024, but if they don't and instead continue to remain at around 5.3%, then 7% above this rate would be 5.67%.
This rate could well be nullified or even succeeded by a 7% royalty payment on Energean's gas production revenues in excess of a base hurdle on the realised gas price.
Important to note: this 7% royalty is set on all of Energeans gas sales revenues which would represent a 55% (not 80%) stake in the asset (if they were to take up the additional 10% post drill). A 7% royalty payment on Energeans 55% stake would equate to a (2.75x, not 4x) compounded revenue uplift for Chariot, which could add up to and extra +19.25% in income from Anchois.
We need to know the minimum required rates of return Energean are looking for on this project to be sure, but if the base hurdle rate is realised, the income share from Anchois could look something like this...
Energean 55% stake - 7% royalty payable to Chariot = 51.15% of revenue from Anchois
Chariot 20% stake +7% of a 55% royalty payment = 23.85% of revenue from Anchois
A note on the 7% royalty payment on all of Energean's gas production revenues to Chariot...
It could increase Chariots revenues from Anchois above 20%.
A 7% royalty on Energeans 80% of revenues re-sized to Chariots 20% stake compounds by 4x.
Indeed Happy.
I also think bringing up Barryroe as a comparison and concerning trolling over flowtests and suchlike is an attempt to sow seeds of doubt. Anchois is nothing like Barryroe and that's why it's been farmed into.
Anchois has been drilled twice. It has really good quality reservoirs and 637 Bcf of discovered 2c reserves.
I think the reason the farm in deal has been constructed the way it has is because Energean need the resource to be 1Tcf in order to make Anchois a new viable producing asset (if offshore infrastructure were already producing nearby, at 637 Bcf, this discovery would already be a viable asset to produce from).
Anchois East has estimated resources of 383 Bcf which, if proven, takes the asset above 1Tcf.
1Tcf is the magic number and if/once they get it there, it completely unlocks the viability of the project.
As I said in my post yesterday, this farm out deal is dependent on the Anchois East drill and that's why it sold off.
The simple explanations are nearly always the right explanations.
"Maybe something similar is happening now with Anchois, and hence the need to drill an additional well."
No. Because unlike the Barryroe field, Anchois HAS been farmed into. By an experienced operator who understands the geology of the region.
Trying to compare Anchois which is a relatively simple field to that of Barryroe which I understand has a very complex geology frought with issues, is a bit of a stretch even for an attempted deramp ;-)
Anchois East will be a find if successful - lots of buying.
Onshore drilling will be a find if succesful...
Am busy with work so havenβt got much time to post on here today, however, felt I need to address this...
Energean's carry of CHARIOT'S COSTS is non-recourse, has a coupon of 7% and is repayable from 50% of Chariot's future net sales revenues from the Lixus licence.
WHAT THIS MEANS IN PRACTICAL TERMS: From the revenue Chariot receives from its sale of Lixus gas (20% of 1Tcf @ $10 per mcf = $2 Billion) it has to pay back its share of carried costs (20% of $850 million) = $170 million. Comparative to revenue this is a very small amount of debt with extremely favourable repayment terms for Chariot. Firstly, it's non-recourse debt, which means Energean cannot demand more of Chariotβs share of Anchois in lieu of repayment, nor can they demand Chariot give them more than 50% of their received revenue from Anchois gas sales to pay back the $170 million carried costs early. From the estimated $2 Billion in revenue that will flow to Chariot from Anchois gas sales, $170 million is a very small amount of debt and probably even serviceable from just onshore gas sales.
Also, the 7% interest rate on the debt could be nullified or even succeeded by a 7% royalty payment on Energean's gas production revenues to Chariot if/when the realised gas price is above the base hurdle price (important to note: this 7% royalty is set on all of Energeans gas sales revenues which represents an 80% stake in the asset.
Energean getting a bargin on a 1Tcf+ gas asset which is ready for production (all contracts signed with Moroccan government). Energean taking a 45% stake, extending to 55% dependent on drill results.
Drill hopefully happening in Q2 2024 (April-June).
Professional,
Thanks for the info. If that's the case then it's Jan/Feb for the onshore Loukos drill and April-June for the offshore Anchois drill.
H1 2024 is going to be an extremely busy period for Chariot.
Goodluck everyone, whatever you decide to do.
FID comes after Anchois East drill. Everything following depends on this.
Did anyone catch in the conference call when they plan to drill Anchois East? I thought I heard 2024 but not sure if H1 or H2...
They're drilling onshore Loukos early part of 2024 (Jan/Feb).
Whimax,
I personally don't subscribe to the manipulation theory.
Indeed there has been a large seller or sellers today.
Arghh, I only managed to suck up 81,000 shares around the 11.1 -11.5p mark. I wanted more!
HappyInvestor,
See my post today at 13:07 titled 'The reason Chariot is down after this RNS'.
The market is only considering associated downside risk with regards to this deal due to the necessary drill. There's no consideration with regards to the upside potential - which is asymmetric.
On a risk/reward basis, it's very good. If Energean take up the additional 10% post drill, Chariot receives $25 million cash, a free $850 million production cost free carry, $50 million in Energean stock, 7% royalties on all of Energeans revenues above base price and best of all... $2 Billion in revenue with a 10 year tax holiday attached.
This happy clapper is trying to buy as much as he can around the 11p mark π π π π
A market cap of cira Β£110 Million makes absolutely no sense. Just 1 producing onshore well is worth 3x more than this and they have 3 of them lined up for drilling in early 2024.
Couple this with a successful drill of Anchois East and you get another $850 million. For Β£110 Million
Downside is limited. Upside is asymmetric. π
π π π π π π π π π π π π
The deal is excellent PROVIDING the Anchois East drill is successful and Energean elect to take up the additional 10%. If they do, then the upside for Chariot's share price becomes truly asymmetric. With a $850 million carry on development to production, the revenues on Chariots 20% share of Anchois gas sales will have few costs attached.
If only we had a crystal ball that would allow us to take a peak into the future...
*That equates to $2 Billion in revenue at an agreed gas sales price of $10 per Mcf.
The entire future of Chariot's portion of Anchois is dependent on Duncan Wallace's work as an O&G geologist and his confidence in there being more gas located in Anchois East. Let's hope he's as good as we think he his.
The most important part of the RNS can be boiled down to this; Only on a successful drill will the $850 million free carry kick in. Everything else is irrelevant. We all know that Moroccan power stations and industry are hungry for gas and the Moroccan government are fully behind this development having had to pay high imported LNG prices for the last 3 years. Gas sales agreements and such like are mere formalities at this point. What's far more important is for Anchois to be a 1Tcf+ resource.
Downside risk
If the Anchois East drill is unsuccessful, Chariot only receive $25 million in cash and an $85 million free carry (90% less) for Anchois. This would give them enough to develop the Loukos onshore acreage (of which they hold a 75% interest), but for offshore Anchois, they would likely need to look for either another partner or give more of the asset away to Energean. This would be the downside β they would end up retaining much less of Anchois.
Upside potential
On a successful drill the SP will rocket. Not only will Chariot receive an $850 million free carry to production retaining 20% of Anchois, they would also get $50 million in Energean stock plus a 7% royalty payment on ALL of Energean's revenues above the base hurdle gas price which would be substantial if there were to be an uplift in gas prices. But what's most important to consider if the drill is successful is that Chariot will receive 20% revenue on the sale of 1Tcf+ of gas over the course of a 10 year tax holiday. That equates to $2 Billion in revenue.
Conclusion
Today's drop is probably overdone when you consider the downside risk is somewhat backstopped by Chariot's onshore acreage and the cash it's going to receive from Energean regardless of the outcome of the Anchois East drill ($25 million). This $25 million, together with the recent placing ($19 million) is probably going to be enough to get the onshore acreage into production even without a successful Anchois East drill. However, on a succesful Anchois East drill everything gets unlocked, including the $850 million free carry and on such a result I would expect the SP to start the climb towards analysts targets of 71p because its just simple math from that point. At this point there's still risk involved albeit the market has overplayed that risk somewhat...
Redeyemines,
It's all about the next drill. Everything else is irrelevant, including gas sales agreements etc.
Everything gets unlocked post a successful drill.