Chariot Oil & Gas (LON:CHAR) is an obvious choice for investors looking for exposure to frontier offshore exploration, according to Northland Capital.
This, the broker says, is because of diverse geology and an imminent drill programme.
Analyst Andrew McGeary says that Chariot and Tower Resources (LON:TRP) provide investors with the ‘purest exposure’ to offshore Namibia.
Additionally he says that Chariot’s current share price offers ‘good value’ for its upcoming exploration work. That is, in part, because the company lost around half its market value in May when it drilled a ‘dry’ hole in the Tapir prospect.
“Whilst a share price fall was unsurprising, the extent of this seemed punitive given this was the first of a four or five well programme in a more or less unexplored territory,” McGeary said.
“In the run up to the next drilling target, Nimrod, shares have begun to recover but still trade at levels significantly below pre-Tapir and at only c. 11 per cent of risked EMV (expected monetary value).
“Imminence of the key Nimrod well raises both short term risk and reward profiles and shares are likely to continue to be volatile.”
McGeary describes Nimrod as a high risk well and it is targeting 4.9 billion barrels of oil.
Although he says it is high-risk from a geological perspective McGeary also points out that because Chariot is free-carried for the well costs it is ‘substantially derisked’ from a financial point of view.
Chariot’s 25 per cent stake in Nimrod is being bankrolled by its major farm-in partners Petrobras and BP.
A drill ship is due to arrive at the well location this month and the ‘spud date’ is expected for early in the third quarter.
Northland Capital today initiated its coverage on the stock with an ‘add’ rating and gave it an estimated value of 111 to 229p per share – with a 170p mean estimate.