The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
The right way for management to fund all these "ventures" would be:
1. to split the company into 2 separate entities (one in charge of Lixus, Rissana and Loukos licenses, and the other one responsible for the renewable energy and green hydrogen projects)
2. To fund renewable/green hydrogen ventures through share placings performed by the specialized company.
By doing that, management will be aware of the real appetite of the market for all these "ventures".
The way management is currently funding them, is clearly affecting future dividends and return to shareholders from Anchois.
"We plan to be one of the biggest independent green hydrogen players in the world,” said Pouroulis, highlighting how they will partner with supermajors and use the most innovative technology.
Pouroulis suggested Morocco, Namibia and South Africa are countries Chariot could expand into due to their wind and solar potential.
A bigger 430 MW solar scheme for a mine in Zambia is underway which Pouroulis said “will be the biggest private renewable project so far” in Africa.
If one member, just one, of this forum, could explain to me the economic rationale, NPV, etc, of one of these projects, I will be grateful
Regards
"If you're not interested in any other revenue streams, then you're free to sell Chariot and buy a gas-only stock."
What other "revenue streams", BDC???
Are you refering to the revenue coming from the water desalinization plant in Djibouti (cero), the green hydrogen project in Mauritania (cero), the solar plant in Zambia (cero), or am I missing something?
I finish the discussion here. Some chapters prefer to resort to calling names and lies instead of analyzing the facts
I´m not a deramper, neither a daily trader. I´ve been a shareholder here for more than a year. Check my posting history.
But, for a company with no revenues, the scope of geographic and project diversification (funded out or shareholders´dilution) is absolutely crazy.
And, because of our interest in Anchois, we have become "hostages" of management, being obligated to read and try to understand something like this (from today´s news release):
"Wheeling is a process where electricity is bought and sold between private parties, using the existing grid to transport power from where it is generated to end-users that can be long distances apart. It creates greater access to affordable renewable energy and contributes to resolving the country's energy crisis".
Regards
Benoit Garrivier, CEO of Chariot Transitional Power, says: "Through our joint venture, Etana Energy, we are very proud to have been involved in the first wheeling of renewable energy in Cape Town. We are very pleased that the city selected us as a trading partner, and we look forward to providing further energy support to the region for the foreseeable future.
I doubt the eventual cash payment from a farm in partner in Anchois will be significant. The potencial partner will be more inclined to secure the development of Anchois (via a CAPEX carry) rather than giving away funds that CHAR'management will surely divert to other ventures.
Regards
We are all here because of Anchois. Nobody in his right mind will invest in CHAR because of the green hydrogen or the renewable energy projects, simply because we don´t have any clue about the economics of them.
Our problem is that CHAR´s management is taking advantage of the market´s appetite for Anchois, to keep funding projects and “ventures” that are questionable to say the least.
In the last 2 years, our collective interest in Anchois has been regularly diluted by management (via share placings) to fund projects and ventures as diverse as a solar and wind project in Zambia, an energy trading in South Africa, a new onshore license in Morroco, a water desalinization plant in Djibouti and a green hydrogen project in Mauritania.
Each one of these new “ventures” obviously require spending millions in advisory fees, salaries, travels, hotels, analysis of commercial and regulatory frameworks, etc.
We shareholders are being regularly asked by management to put new money in the company, in order not to lose our collective economic interest in Anchois.
Just an example:
On July 10, management informed that “the Anchois Gas Development has 2C contingent resources of 637 Bcf which gives the project an NPV10 of US$1.6 billion based on a working interest of 75% and a US$12/mmbtu gas price”.
Before the share placing announced on that day, the economics of Anchois had been equivalent to US$ 1,65/share (US$ 1.6 billion / 970 million shares)
Now, after the dilution provoked by that share placing, our economic interest in Anchois has been reduced to US$ 1,50/share (US$ 1.6 billion / 1.070 million shares)
A reduction of aprox 10%
The only way to avoid future dilution of our participation in Anchois would be to split CHAR into 2 different companies, one in charge of Anchois and the other one responsible for the “new ventures”
But I don´t think this is going to happen. Management already know that it would be much more difficult to raise money for a company that can only show to the market a handful of obscure and diverse projects. It´s much better to keep taking advantage of market´s expectations about Anchois, in order to entice it to keep funding the rest of the portfolio.
And this trend is not going to end. Adonis has already said in an interview that he has a “pipeline” of green hydrogen and renewable energy projects under review, to make “scalability” of those items of the portfolio.
I´m sure management will take advantage of any increase in price, as a resultant of an eventual partnering announcement for Anchois, to make a new placing and further dilute our interest in that project.
Regards
Fernan
I remember the case of Barryroe oil project offshore Ireland.
Back in 2012, Providence Resources, the operator of the project, announced a very sucessfull appraisal well (including a very interesting well flowing result), and immediately started a farm in project to develop the field.
10 years past, and spite of the operator´s regular announcements of "plenty of interest" in the data room, nobody farmed into the project.
It seems the field had some geological risks/uncertainties that couldn´t be adequately addressed by the first well. In that case, the principal risk was the eventual compartmentalization of the reservoir, and the resultant increase in the development cost.
A few months ago, the Ireland government refused to give the operator another extension to its exploration license, and the project is dead.
Maybe something similar is happening now with Anchois, and hence the need to drill an additional well.
If that is the case, it´s likely CHAR will be obligated to drill Anchois East with its own resources (i.e., more shareholder dilution) before continuing with the farm in process. In these circumstances, I would have liked the company to use the recent fundraising to drill that offshore well, instead of acquiring the onshore exploration license.
Time will tell.
Regards
Fernan
Https://oilprice.com/Energy/Energy-General/Cost-Effective-Catalyst-To-Supercharge-Green-Hydrogen-Production.html
"The team’s achievement is a step forward in DOE’s Hydrogen Energy Earthshot initiative, which mimics the U.S. space program’s “Moon Shot” of the 1960s. Its ambitious goal is to lower the cost for green hydrogen production to one dollar per kilogram in a decade. Production of green hydrogen at that cost could reshape the nation’s economy. Applications include the electric grid, manufacturing, transportation and residential and commercial heating."
A production cost of US$ 1/kg will be equivalent to an oil price of US$ 47,30/b.
Regards
"During the partnering negotiations I can only assume Chariot were offered additional cash to drill the onshore wells under the new licence for less retention of the Anchois asset and because of the sheer value of Anchois, Chariot instead deemed a raise and dilution of 9.2% (and retaining more of Anchois) better value for shareholders over the long term than relinquishing more of Anchois to the partner."
A potential farminee for the offshore project, offering Chariot cash to drill some onshore wells in a license that Chariot doesn´t have yet?
One of the most convoluted reasonings that I have read in years.
Regards
Adonis paid nothing for his initial equity holding in CHAR. In 2021 or 2022, he invested a few million in a placing. But, after a few years, he will earn a lot more than that through his salary, bonuses and free share awards.
As it´s the usual case for management, more "ventures " mean more power, higher salaries, especial bonuses, etc.
Not sure he is fully aligned with us.
I have noticed the efforts made by some posters here trying to find the reasons for this unexpected shareholders dilution.
Some say that capturing this onshore acreage is necessary to secure better farm out terms for Anchois. I find it difficult to defend such argument.
Others think that this onshore acreage should be too good an opportunity to let it go (in spite of the fact that, apparently, we are talking about an exploration license that was previously relinquished by SDX).
There are those that believe management´s comments about the chance of getting to cash flow quicker from this new onshore acreage, in comparison to Anchois. I doubt that, since, as stated in the press release, the new acreage will likely use the same gas processing facilities to be built for Anchois.
For me, this placing is related to 2 things:
- Adonis is more interested in “building an empire” than in “maximizing shareholder returns”. It seems to me he doesn´t care about diluting shareholders, in order to growth for the sake of growth.
In this particular case, we shareholders are losing a 10% equity interest in a project with a NPV of US$ 1.6 billion (net to 75% Chariot interest in Anchois), just to drill 4 exploratory wells that obviously carry exploration risk, and have a potential resource of only a few billion cubic feet each.
- They were running out of money. Only US$ 12 million out of the US$ 18 million to be raised will be invested in the new acreage. The remaining US$ 6 million will be used for “working capital purposes” (i.e., wages) and “new ventures”
The message from management to us shareholders is: no matter what we said previously, we can unexpectedly dilute you any time we find an interesting business opportunity to pursue.
I think this message will endure in the minds of investors for a long time.
Regards
With each subsequent placing, we shareholders lose a share of Anchois´future cash flows.
I would like to see the company growing in an organic way (that is, by reinvesting operating cash flows) instead of over expanding at the expense of shareholders.
According to the terms of the First Complimentary Period under the Grand Tendrara Exploration Permit, Sou/Calvalley must drill the TE-4 prospect before 1 October 2024.
See SOU announcement on December 22th, 2022 here:
https://www.lse.co.uk/rns/SOU/exploration-permit-update-756lo2u3wy29wip.html
Regards
Fernan
As per the farm-out agreement, Calvalley will fund 100% of the TE-4 Horst well costs up to a cap of US$7 million
The prospect is located very close to the infraestructure to be built for the Tendrara production concession. In case of success, it could be developed with minimal aditional OPEX and CAPEX. It will only require the drilling of a few development wells, flowlines and a short pipeline to connect with the central facilities.
Calc of economic benefit for the success case
Gas in place (gross): 260 bcf
Recoverable resource (gross): 50% of gas in place (similar to the TE-5 horst)= 130 bcf
Selling price: US$ 10/mcf
CAPEX: US$ 100 million (conservative)
Undiscounted free cash flow (gross): (130 bcf x US$ 10/mcf) x (1-royalty 3,5%) - CAPEX US$ 100 million= US$ 1.154 million
Undiscounted free cash flow (net to SOU):
US$ 1.154 million X 35% X (1- Schlumberger's net profit interest 10%)= US$ 364 million.
Regards
Fernan
On June 14th, 2021, SOU announced the acquisition of Schlumbergr´s 27,5% participating interest in the Anoual and Tendrara exploration licenses, together with the Tendrara production concesion.
Consideration to be paid by SOU:
"In consideration for the Acquisition, the Group shall make an initial payment of US$1 (one US dollar) to the Seller in cash on completion and may make future payments to the Seller pursuant to a Profit Sharing Deed ("PSD")."
"Under the principal terms of the PSD, the Group will pay to the Seller an amount equivalent to between 8% and 11% of total net profits (after costs, taxes and other applicable deductions) arising from the Concession over a period of 12 years from first commercial production from the Concession."
I think one of most important issues to ask management next week is what options are being analyzed in relation to the selling of this uncontrated gas.
The upside to the current share price could be significant.
Regards
Fernan
There are 195,3 bcf of gross gas resources ( 68 bcf net to SOU) for which we don´t have a buyer yet (see last SP Angel note).
SP Angel´s assumption in their model is that this gas will be sold at US$ 9/mcf.
If SOU can sell this excess gas to Europe, at an average price of, say, US$ 12/mcf, the tax free upside to SOU will be:
195,3 bcf X 35% X (US$ 12 - US$ 9) X (1- royalty rate 3,5%)= US$ 198 million= US$ 0,05/share
I understand that Schlumberger has an equity participation in that upside (because of a previous agreement), but even after computing that, there is still a significant upside to SOU.
Regards
Fernan
Part of the gap to get to the required amount of equity for a 65% debt gearing is due to the fact that Calvalley will direct part of their funding to exploration (drilling of the TE 4 will) instead of phase 2 development. Exploration costs should be fully funded by the private partners of the exploration license, without any contribution from ONHYM.
I´m sure that Sound and Calvalley had made all the calculations before agreeing that, and they are confident that Free Cash Flow from phase 1 will be enough to secure a 65% gearing for a US$ 237 million debt.
Regards
Fernan