RE: Finn Cap Broker target 31p nearly 1000%+ from SP13 Oct 2020 11:52
Part 2
Exploration write-off signals intent
Chariot’s interims represent something of a line in the sand for the new management
team, with historic oil-focussed deepwater exploration spend written-off demonstrating its
recent corporate and strategic ‘reboot’, which has ushered in a more entrepreneurial
approach. This shift in strategy away from higher risk frontier exploration in favour of
opportunities that better fit the energy transition has the potential to yield near term cash
flow and dramatically redefine the risk profile of the company.
Management continues to drive the significant Lixus block gas opportunity forward in
Morocco while pursuing value-accretive new ventures that are in tune with the energy
transition as it looks to keep the company relevant in these changing times.
Its Anchois gas development opportunity in Morocco offers both scale and strong
economics. It provides access to the large, growing and attractively priced Moroccan
energy market, where gas prices are ~US$8/mmbtu for power generation and US$10-
11/MMBtu for the industrial sector.
It also has clear ESG attractions as an enabler of Morocco’s ambition to transition to
renewables and increase the use of gas in power generation, reducing its reliance on
imports and coal and allowing transition to a lower carbon economy.
Engagement with potential gas off-takers both domestically and regionally via the
Maghreb-Europe pipeline continues. Discussions are ongoing with the state electricity
company, private power generators and industrial users within both the domestic
Moroccan and European gas markets. These are described as encouraging.
Development debt financing discussions have progressed with a range of interested
parties for the US$300-500m of capex required to first gas, underlining the quality of the
project.
Partnering discussions to fund an appraisal well on Anchois are also ongoing, with further
interested parties entering the data room since Chariot’s recent seismic reprocessing and
material resource upgrade.
Cash balance at the end of June stood at US$5.8m with zero debt and no remaining work
commitments. Annual cash overheads have been reduced by ~45%, from US$4.5m to
US$2.5m, which means Chariot is funded at least through 2021.
A non-cash impairment charge of US$66.7m was taken, fully writing off Chariot’s historic
exploration spend in Namibia and Brazil. This is not only in recognition of the current poor
deepwater oil exploration market outlook, but also reflects management’s shift in strategic
direction.
Despite the write-downs, Chariot will retain its interests in Namibia and Brazil, which have
no additional work commitments, and will continue to pursue partners for both assets. Key
third-party offset wells are expected in 2020-2021 in Brazil and Namibia and will help to
inform the prospectivity and value of Chariot’s acreage.
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