December saw the small-cap oil and gas sector was awoken from inertia with a flurry of activity.
Casual onlookers could be easily distracted by the big numbers coming from the big boys, as over one hundred billion dollars of shale M&A recently saw Exxon, Chevron and Occidental bolster their respective US shale positions.
Closer to home, on AIM, however, there’s been a round of project milestones and deal making that were long-in-the-waiting.
Whilst these catalysts may not have quite the same scale or pizzazz as the blue-chip deals, they’re significantly value adding for the small cap companies involved.
Capital markets have been tight throughout the last year, which has added an extra element of respite for these growth companies as they’ve navigated the prolonged ebb.
Cash-injections through partnering success or new revenue streams coming online soon, sets these small-caps up advantageously for the coming year.
Here’s a look at part one of the list of small cap oil and gas stocks to watch in 2024.
Chariot
In the first week of December, Chariot Ltd (AIM:CHAR, OTC:OIGLF) landed a significant deal with Energean which sees Chariot bank $10 million of upfront cash and secure an $85 million ‘carry’ of costs to take the Anchois project, part of the Lixus licence offshore Morocco.
Chariot will be due another $15 million of cash upon ‘final investment decision’ which could come by late 2024.
The deal sees Energean acquire a 45% interest in the Lixus licence, and take up interests in other acreage.
It also give Energean the option to pick up another 10% of the project, in return for providing Chariot with a ‘gross carry’ over some $850 million of project development spend needed to deliver Anchois to ‘first gas’.
Chariot boss Adonis Pouroulis described it as “a key step in bringing the development of the Anchois field to reality”, and, he described Energean as “a partner proven track record of rapidly building and delivering this kind of offshore development”.
Peel Hunt oil and gas analyst, Werner Riding meanwhile commented: “This is a timely farm-out for Chariot that introduces a competent, funded operator with regional relationships and expertise in developing significant gas resource.”
Upcoming catalyst will include the drilling of an appraisal well to further de-risk the project, as well as seeing the well bore saved for the future.
After a few years focusing on deal processes, 2024 is shaping up to be a busier and more exciting time for Chariot.
Jersey Oil & Gas
Jersey Oil and Gas PLC (AIM:JOG, OTC:JYOGF) plans for the Buchan field shifted significantly closer to fruition in 2023 – with many important jigsaw pieces put in place – now, after sealing an important farm-out deal with Serica Energy, in late November, it is set up for a bigger 2024.
Serica, one of the top North Sea independents, is taking up a 30% stake in Buchan in return for $18 million of upfront cash (out of a total $38 million of total potential cash payments) plus a 20% ‘carry’ on Jersey’s share of project costs.
"Not only does it bring a further high-quality partner into the joint venture, but it unlocks exceptional value for the company and delivers upon our overall objectives for the GBA farm-out strategy," Jersey chief executive Andrew Benitz said.
The importance of JOG's 20% carry should not be underestimated given the predicted £850-£950 million costs to develop the field, which is host to around 70 million barrels of oil equivalent, and which should have peak production of around 35,000 barrels a day.
Its Jersey’s second farm-out this year, following the deal struck in … with Neo Energy and it sets up 2024 as a big year.
The Buchan Field Development Plan (FDP) is scheduled for approval in 2024, with first oil production forecast to be delivered by late 2026.
Hartshead Resources
Another significant North Sea deal was struck in December, with ASX-listed Hartshead Resources NL (ASX:HHR, OTC:PGNYF) agreed a project funding arrangement with its private-equity funded venture partner RockRose.
Hartshead has entered into a novel and inventive ‘backstop’ in which the company provisionally agrees to sell a further 20% stake in the Somerville and Anning gas fields, in exchange for an uncapped 100% ‘carry’ on the Phase 1 development.
The novel ‘backstop’ part is that Hartshead retains the option to get an alternative standalone project financing for its share of capex, and then retain its current 40% stake.
According to Hartshead, the funding backstop is a “major achievement” that de-risks the project financing, giving the company a clear pathway to development and cashflow. It effectively stops both parties from needing to wait for Hartshead to finalise traditional financing, and, allows the project to advance towards development.
Hartshead presently retains a 40% interest in the assets, whilst the backstop funding amounts to some US$800 million of debt-free, non-equity-diluting financing. The company’s ASX-listed shares meanwhile give it a market capitalisation of a mere A$84 million.
The Phase 1 fields have an estimated 301.5 billion cubic feet (Bcf) of gas reserves, whilst the subsequent phases promise further upside through the unlocking and development of further gas resources, which are envisaged as feed into the UK’s Bacton Energy Hub – which is part of the government's energy transition and net zero plans.
A previously published timeline, based on an FID in 2023, anticipated 'first gas' production coming in 2025.
Reabold Resources
Reabold Resources PLC (AIM:RBD), the AIM-quoted oil and gas investor in December received a long awaited £5.2 million anniversary payment from its deal with Shell, for the Victory field (via the Corallian Energy vehicle).
A year ago, Reabold received £3.2 million in upfront cash, followed by today’s £5.2 million and a further contingent £4.4 million payment will be due upon the North Sea Transition Authority (NSTA) granting development approval for the Victory gas field – Reabold expects this “within the coming months”.
In the meantime, Reabold is focusing its financial resources on the Colle Santo gas project in Italy, and West Newton onshore UK.