Member Info for Fernan10

"it reads Chariots get 50% of ETUs share of oil production up to 4000bopd... if production goes up Chariot are capped at 4000 and if production decreases Chariot get 50%.. eg daily production 6000 Chariot are entitled to the 3000."

That's exactly how I read it.

And yes, until proved otherwise, if the production consortium decides to increase production, CHAR will be required to pay for any increase in CAPEX, via a lower free cash flow allocated to it.

You wrote:

"The 4000 bopd “capped” figure... is not there as a blanket or hard cap and will be moveable up or down depending on future flow rates and whether CHAR want to maintain their 10% interest."

Wishfull thinking at its best.

Shell couldn't care less about the details of the funding agreement between CHAR and ETU.

CHAR is not a working interest partner. It hasn't any role in the production sharing agreement with the angolan government either.

If, after providing the initial funding, CHAR dissapears overnight, nobody in Angola will care.

Just an example:

Let´s suppose the petroleum consortium decides (without CHAR participation) to invest US$ 200 million in exploratory/development drilling, in order to growth production, from the current 40.000 bopd (gross) to, say, 60.000 bopd

That year, CHAR´s allocated free cash flow will be reduced by US$ 20 million:

Gross CAPEX US$ 200 million X 20% ETU Energias working interest X 50%= US$ 20 million

In spite of funding this increase in CAPEX (through a lower attributable cash flow), CHAR won´t be entitled to receive any additional barrels, due to the 4.000 bpd cap

1.CHAR is not part of the petroleum production consortium. Any decision regarding production plans, CAPEX, negotiations with the Angolan state, will be taken without CHAR´s involvement.

2.Unlimited downside risk

In case the production consortium (including Etu Energias, and excluding CHAR) decides to grow production and substantially increase CAPEX, gross free cash flows (and, consequently, free cash flows to be allocated to CHAR) will be reduced, and could turn even into negative territory. CHAR will be obliged to fund those negative cash flows, without the right to receive any economic gain derived from this higher production (because of the 4.000 bopd cap).

3 Limited upside/no upside at all

No oil production upside: because of the 4.000 bopd cap

No oil price upside: The vendor of the working interest to Etu Energias is entitled to receive “Contingent payments of up to US$115m which relate primarily to Brent crude oil pricing exceeding thresholds between 2026 and 2028”

4. Etu Energias´economic incentive is against CHAR

For the reasons explained above, Etu Energias has every incentive to try to increase production, with CHAR funding part of the CAPEX, and no right to receive any extra barrels for their contribution.

I suspect that Shell also has every incentive to increase production, because of their offtake agreement.

Of course, this is all based on the info provided by CHAR. If the detail of the agreements proves different, that will be another story.

By the way, no conference call was announced to explain the details of this “transformative deal”. Is it because management don´t want to answer tough questions from those who subscribed shares at 14p 3 years ago, based on the CFO´s promises to return “substantial amounts of cash flows to shareholders” from Anchois?

Thanks.

I really don't care about unsubstantiated critics and personal attacks.

Tomorrow, I will try to explain why in my oppinion this is a poor deal for CHAR.

Please Marland.

Read again.

The buyer of the working interest in the angolan blocks is Etu Energias, not CHAR.

We are just FUNDING that purchase.

I'm sure there are other hidden risks.

This is a poorly structured deal.

We've been diluted to oblivion, just for Adonis to say that now we have our own "oil production", that is not true

Nop, CHAR won't buy any working interest in the angolan blocks.

The buyer of the working interests is Etu Energias, not CHAR.

CHAR will only be entitled to the economics associated with material production from the working interest to be acquired, equivalent to up to 4.000 bopd.

CHAR won't have any vote regarding CAPEX, production plans, etc.

It will only receive the economic benefits from such production.

ETU Energias (an angolan company) will buy a 20% working interest in 2 blocks offshore Angola and Congo. CHAR will provide some of the funding for the acquisition, in order for it “to be exposed to the economics associated with material production from the working interest to be acquired equivalent to up to 4,000 bopd”.

According to the press release, after the repayment of the Shell facility and CHAR´s funding, “Chariot will subsequently share future cashflows with Etu Energias equivalent to up to 4,000 bopd”

It seems that CHAR will be assigned its share of free cash flow according to the following formula:

(Gross free cash flow / gross production) X 20% ETU working interest X 50%

For a gross production of 40.000 bopd, CHAR will be assigned the maximum proportionate free cash flow equivalent to 4.000 bopd.

If gross production exceeds that number, no additional free cash flow will be allocated to CHAR.

It´s clear that the member of the production consortium will be Etu Energias, not CHAR. CHAR will simply be providing the funding “behind the scene”.

Question: what happened if the partnership that owns the production license (including Etu, and excluding CHAR) decides to invest heavily, in order to increase production?

In such a case, the free cash flow (in US$ per barrel) to be allocated to CHAR could be substantially reduced, in order to fund the CAPEX required to produce those additional barrels, barrels that won´t be assigned to CHAR.

In fact, because of such increase in CAPEX, the free cash flow assigned to CHAR could even turn negative (not an uncommon issue in the context of growing production). In that case, will CHAR be asked to fund such production growth?

And what happened in the event of exploratory drilling? Will CHAR be asked to fund it too, out of the free cash flow that is entitled to??

It seems ETU Energias has every incentive to increase production, besides the 40.000 bopd gross level at the time of closing the deal. Every additional barrel will be partially funded by CHAR (via a reduced free cash flow per barrel), but ETU will keep those additional barrels for itself.

Comments?

Completely unrelated to CHAR.

Don't waste our time

"I reckon this is the bottom at least ?"

To me, it sounds like "this time is different".

Lot of people have lost their fortunes by believing something like that.

In the specific case of CHAR, I won't be so sure that we have finally found "the bottom".

Buying at the open offer, you get 1 warrant for free

This is the last of my worries. CHAR has already stated that our working capital, together with the monetization of the renewables, will cover expenses until first cash flows from the transaction.

The real worry here should be the "warrants wall" that has been built at around 3p.

That will put a ceiling in the share price for years to come.

I've already made the calcs for Shell's debt repayment:

After tax free cash flow (after CAPEX): US$ 20/b

(I explained that assuption before).

8.000 bopd x 365 days x 3 years x US 20/b: US$ 175 million

The 3 years period should be counted from the effective economic date (Jan 1, 2025). It will likely be fully repaid in 2028

Whilmax:

I was waiting for someone to ask about the chance to refinance the Shell debt, in order for CHAR to receive cash flows earlier.

The new debt will certainly come with its own covenants limiting cash distributions. So, we need to know those covenants before thinking about that.

So, after 18 years of operation, Adonis decided to dilute shareholders at a share price of 1.4p, in order to buy a producing asset.

He could have done this from the beginning, when the share price was 200p, 100p, 50p.

What a fool of a CEO we have.

The 3 years that I originally calculated to repay the Shell debt should be counted from the effective economic date (Jan 1, 2025).

Depending on the closing date, that will be reduced to 2 years, 1 year, or cero.

But that doesn't change the basic fact: CHAR will start receiving cash flows 3 years after the effective economic date (likely in 2028).

I agree.

We can assume that, taking into account the cash flows already generated from the economic effective date (Jan 1, 2025), Shell's facility will likely be repaid in 2 years instead of 3.

Kissncuddles:

I know that.

But, if the loan is refinanced, the annual after tax free cash flow to CHAR will be reduced, in order to take care of the new debt payments. The eventual refinancing of the Shell facility will change the timing of the debt repayments, but won´t substantially change the total amount of cash flow to be received by CHAR.