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Pancontinental Oil & Gas (operator of PEL 87 in Namibia) issued a technical report on the Saturn complex, adjacent to blocks 2.714A and 2.714 B (the ones that CHAR has a 10% back in right).

"The mature area directly beneath the Saturn Complex is estimated to have generated and expelled approximately 20 Billion barrels of oil; sufficient to charge the full Saturn prospect/lead inventory up to the high case"

The report confirms that blocks 2.714 A and 2.714B are both located in the oil window of the basin (see the map on the report)

https://www.fool.com.au/tickers/asx-pcl/announcements/2025-07-02/6a1271170/pel-87-technical-update/

It seems this is the way for CHAR´s management to keep funding salaries, overheads and extravagant G&A expenses, taking into account that the company has no revenues

In December 2021, CHAR raised US$ 11 million in order to, among other things, "finalise negotiations of gas sales agreements and financing to unlock Final Investment Decision on Anchois".

They "finalised" nothing, spent the money in salaries and overheads, and opened a farm out process to fund further exploration/development of Anchois.

In 2023, they raised US$ 12 million to drill 4 onshore wells in Loukos (at an estimated cost of US$ 3 million per well).

They drilled only 2 wells, spent the remaining money (US$ 6 million) in salaries and overheads, and opened a farm out process to fund more drilling in Loukos.

Hi Surfit.

All tough questions, that would require aproppiate answers. Have you submitted any (or all) of them for next Friday webcast?

Regards

The 10% back-in right is for no consideration (see the August 2017 press release).

The US$ 2 million was supposedly raised to get a new license in Namibia

In July 2024, the company raised money from shareholders to:

-Secure a material new venture opportunity with multi-billion barrel potential (US$ 2 million)

-Progress onshore gas commercialisation plans in Morocco to build a gas to industry supply (US$ 2 million)

The "material new venture opportunity" was referring to the award of a new exploration license in Namibia.

Analyzing the 2024 annual report, it´s evident that:

- nothing of that was achieved

- the money was used to pay for salaries and G&A expenses.

Questions:

-was that misuse of funds deliberately planned by CHAR, in advance of the placing?

- what would have happened if suddenly the license was about to be awarded to CHAR? would they try to get another share placing?

- is it possible that the license was not awarded to CHAR yet, because the company spent the money in other "ventures"?

I dont think so.

SOU will likely need US$ 4-5 million before first revenue.

See the calculations in my June 19th post.

In the 2023 annual results, company´s directors prepared a cash flow forecast for the period 1 May 2024 to 31 December 2025 (note 2 to financial statements)

They calculated a US$7.2 million outflow for ongoing general and administrative costs of the Group over the forecast period (20 months)

They ended up spending US$ 10.1 million only in 2024

This is a financial disaster.

There is no way a US$ 30 million market cap company can sustain an annual overhead expense of US$ 15 million.

Or, maybe, there is a way: persistent shareholder dilution, executed in the way of continuing unfulfilled promises, made only to raise money from gullible shareholders.

A US$ 15 million annual overhead is economically equivalent to having a US$ 80 million outstanding debt, to be repaid (together with accrued interest) during the next 5 years.

By the way: what exactly did management achieve in 2024, in order to justify a US$ 3.3 million share based payment??

In December 2021, CHAR raised US$ 11 million in order to, among other things, "finalise negotiations of gas sales agreements and financing to unlock Final Investment Decision on Anchois"

https://www.lse.co.uk/rns/CHAR/proposed-placing-subscription-and-open-offer-1viuuh13owizl6b.html

The amount of deception and underperformance here is simply astonishing.

I suspect CHAR have come back to the project design that had been envisaged before the farm out to Energen and the A3 fiasco.

The features of that previous project were the following:

Source: CHAR´s december 2021 presentation:

*2 producer wells: A1 and A2

*Resource:

A sand: 115 bcf

B sand; 247 bcf

Total 2C resource: 361 bcf

The amount of resource in A and B sands could have been reduced after the failure of A3 (specially in A sand). But this reduction could have been somewhat compensated by the discovery of gas in C and M sands in A2 well

*CAPEX: US$ 300 million

This amount has likely increased, due to:

- inflationary pressures since december 2021

. the requirement to redrill A1, as was informed by CHAR

*Production: 70 mmcfd

*Gas sales price (to power and industry): 8-11/mcf

NPV: US$ 500 million (net to CHAR)

Yes Surfit, it´s becoming bizarre.....after raising millions to perform Anchois FEED (in 2022), drill 4 onshore wells in Loukos (2023), get a new license in Namibia and an agreement to sell onshore gas (2024)...what are they doing now??? Developing any of those assets??? readying any of them to production??....nop....they are in data rooms scouring for new assets.....

It seems our management is becoming desperate to find something worth enough to keep receiving their salaries....

HC will be delighted to see that.

Surfit:

Each day that goes by, CHAR´s management credibility diminish. In the last 3 years, they have raised millions to drill and test Loukos, get a new license in Namibia, negotiate an agreement to sell onshore gas, etc, etc.

But they have accomplished nothing.

And now, they are looking to buy a "near production asset, to be funded at the subsidiary level".

You are right, maybe HC has been right all the way.

Regards

"funding the purchase of a producing asset at a subsidiary level" means that someone else will put the capital to make the acquisition.

In that case, will that someone let CHAR to have a substantial return out of his/her investment?

I started to suspect that eventual acquisition will be done with the sole purpose of keep justifying management salaries and benefits, after all failures in recent years (maybe I´m paying to much attention to HC)

If CHAR is going to issue tons (billions) of shares at current share price, to pay for a productive asset, that will mean that, for current shareholders, the existing business will be valued at cero (0).

I was talking of a non dilutive" quickest way to cashflow.

Of course, CHAR could buy an already producing asset at any time.

Buy with what money????

The quickest way to cash flow is to redrill/test existent gas discoveries in the Loukos area, along with the testing of the OBA-1well.

By memory, there are 3 previous gas discoveries in the Loukos license that can be tested (or redrilled, if necessary).

Each well could be drilled for US$ 3 million.

Payback will be less than a year:

Assumptions:

Production: 2 mmcfd

Sales price (to the midstream Chariot-VIvo JV): US$ 8/mcf

Operating cost: US$ 1.5/mcf

Annual operating cash flow: 2 mmcfd/1000 X (US$ 8 - US$ 1.5) X 365 d= US$ 4.75 million/year

Regards

All in all, it seems that SOU will require (at a minimum) US$ 4-5 million to pay for operational and financial expenses up to first gas sales.

And this is assuming that there won´t be other cost overruns or delays in project´s execution (a recurrent problem in SOU´s past)

That calc doesn´t include the seismic obligation in Sidi. If managers were willing to analyze solar and hydrogen projects just to get busy, they could be tempted to shoot seismic in Sidi too.

And, lastly, there is still £0.6m of accrued interest of the 2023 convertible bond outstanding (note 26 to financial statements for 2024). I understand this accrued interest could be converted into shares at any time. At current share prices, that would imply the issue of aprox 90-100 million shares.

Cash at the end of March (£3.1 million) will barely be enough to cover G&A expenses until first gas sales.

There is a potential funding gap, as a result of converting the LNG rental contract to an EPC one.

The operator agreed to pay Italfluid (see March 17th press release):

-US$ 18 million following a payment schedule in line with the actual work progress, with staged payments through gas processing plant commissioning,

-US$ 7 million paid once the plant is fully commissioned

SOU will be responsible for 20% of that amount (US$ 5 million net to SOU).

I don´t know if US$ 9.5 million of past payments already made to Itafluid will be deducted from the US$ 18 million (the press release is not clear about that). If that´s the case, SOU´s net exposure should be reduced to US$ 3.2 million.

I´m sure that part of that obligation was paid before the end of March (hence the reduction in SOU´s cash position since end last year). But, because payments to Italfluid should be aligned with “actual work progress”, I suspect there are substantial payments to be made yet (likely no less than US$ 10-12 million, including the US$ 7 million due after commissioning). That´s US$ 2-2.4 million net to SOU.

The lowering cash balance since last December is likely to have happened not only to pay Italfluid, but also to cancel trade payables outstanding at Dec.

I suspect the conversion of the LNG rental agreement into an EPC contract (with the obvious consequence of an increase in pre first gas cost, and risk of further shareholder dilution) was decided by Managem. SOU´s management could do nothing about that.

Graham set up the LNG rental agreement as a means to reduce funding requirements before first gas. Thas was now reverted by Managem (in order to achieve a greater NPV), without giving any consideration to SOU´s current liquidity situation.

What other activities related to phase 1 are still awaiting conclusion, that will require more funding from SOU? Managem only carries SOU in relation to phase 2 expenditures. SOU should still fund 20% of phase 1 costs.

In the March 17th press release, management talked about the following activities still awaiting execution:

-procurement and delivery to site of the gas gathering system equipment

-completion of the installation of the gas gathering system and connection to the wells

The 2024 Annual report informed that the following significant activities are scheduled for 2025:

1. Clean up operation of wells TE-6 and TE-7

2. Connecting the wells to the mLNG plant

3. Delivery, installation and connection of mLNG plant processing packages

4. Commissioning of the mLNG plant

The Afriquia loan has been substantially fully drawn down at Dec 31. So SOU can´t use that loan to pay Italfluid or other payment obligations related to phase 1.

In addition to that, 2% of annual interest of the secured bonds should be paid in cash this year (equivalent to US$ 0.6 million per year).

"But the third and most glaring error is the assumption of a flat production rate. At 30 mmscf/day it would take 35 years to extract the estimated recoverable volume of 377 bcf. Including the Phase 1 volumes that would reduce to 26 years. But that would be wrong on two further counts -- the take or pay contract with Afriquia is only for ten years. It would be silly to extend it for decades longer when Phase 2 gas is vastly cheaper to produce."

ANSWER: I agree that production numbers seem low for the amount of the 2C resource. But that what SOU informed to the market. As soon as SOU change its production forecast, I will change my numbers.

And, as i said before, the eventual increase in production is completely out of SOU's control now