” Chariot Oil & Gas Gathers Momentum ”
Shares in Chariot Oil & Gas (LSE:CHAR) have recovered some ground over the last month after a tough start to 2018 as the firm prepares itself for a potentially game-changing drill in Namibia. With Chariot lining up some further critical developments in Brazil and Morocco, we look at whether investors can move on from its failures earlier this year to allow this positive trajectory to continue.
Chariot’s shares faced a battering in February after the business carried out a $15m placing at a whopping 36pc discount to its market price just two weeks before spudding a key well in Morocco. The steep discount gave out the wrong impression at a pivotal moment in the company’s development and, as such, investors headed for the door en masse, leading shares to fall from 20.6p to 15p in a matter of days. Chariot suffered another blow in April when it revealed that its Rabat Deep 1 well in Morocco had been unsuccessful. Despite the drill’s failure, the firm argued that it still provided valuable information about the surrounding area and, what’s more, it pointed out that it came at zero costs thanks to farm-outs to both Woodside and Eni. But these points were lost on investors, and shares plummeted 30pc in one day.
Over the last month, sentiment towards Chariot has shown slow signs of a recovery, with shares rising from 8p to 10p, hitting highs of 10.8p. At the end of last month, the company secured an option to back-in for between 10-20pc equity in the C-19 block in Mauritania, recently awarded to a subsidiary of Shell. Chariot is now deciding whether to exercise the option. The news was well received by the market, with shares rising 12.5pc. A day later, the business received a further boost a day later when it released a bullish AGM statement that claimed overhead costs have remained tightly controlled, allowing for counter-cyclical investment in its portfolio
Chariot boasts several potentially game-changing catalysts on its horizon that could see sentiment recover even further. The most notable of these is its plan in Q4 2018 to drill its 65pc-owned Prospect S in Namibia, which has a gross mean prospective resource of 459MMbbls and a probability of geologic success of 29pc. Importantly, Prospect S is one of five new structural prospects containing between 283-459MMbbls in prospective resources, leading Chariot to suggest it could de-risk a portfolio containing 2Bbbls of gross mean prospective resources. The firm is funded to drill the well from February’s placing, and preparations are already underway.
Moving into the first half of 2019, Chariot is planning to drill a well at its 75pc-owned Kenitra licence in Morocco, where it is targeting a net potential of 464MMbbls oil with potential upside of 800MMbbls. Then, in H1 2020, it plans to drill its wholly-owned Prospect 1 in Brazil, where it has built a portfolio of seven prospective reservoir targets individually ranging up to 366mmbbls at the site. It believes a single vertical can penetrate three stacked targets with a gross mean prospective resource of 911mmbbls.
In its AGM statement, Chariot said it ended 2017 with $15.2m cash. Add this to the $16.5m raised in February to fund Prospect S and the business has a notional cash balance of $31.7m. With this converting to c.£24m, Chariot’s cash seems to heavily underpin its present £35m market cap on the face of it. However, it is important to remember that a $15m will be used to fund Q4’s drilling activity. What’s more, its 2017 accounts reveal $3.6m of restricted cash and annual operating expenses of c.$4.2m. With this in mind, Chariot’s cash by year-end seems likely to be a lot weaker than first appearances would suggest
Clearly, maintaining cash without revenue is just part and parcel of an exploration firm’s operations, but it may be worth keeping an eye out for any signs of a placing given Chariot has plenty of work on the horizon. If it does place, one would hope it has learned February’s disaster and puts more consideration into timing.
After a bumpy start to the year, Chariot seems to be winning the market back around, and with several potentially game-changing drills on the horizon, any success could see this trajectory continue. However, as with all junior oil plays, keeping an eye out for the company’s cash balance is essential.