A new seismic programme is just getting underway on the Kenitra and Mohammedia exploration permits offshore Morocco.
Chariot Oil & Gas Limited (LON:CHAR) currently owns 75% of the licence, with the rest held by ONHYM, the state oil company.
How things play out in terms of ownership thereafter depends largely on what sort of results come in. But for an indication as to what could happen in the event of success, investors need look no further than to one of the company’s other exploration blocks in Morocco, Rabat Deep.
Here, work is a little further along.
Major oil companies Woodside and ENI have farmed in, reducing Chariot down to a 10% stake and providing it with a capped carry through the next stage of exploration.
That involves drilling a well costing around US$50mln, scheduled for drilling early in 2018.
Successful drilling would be transformational for Chariot, even on a mere 10% interest because, as is Chariot’s wont, the target is big.
In this case, the target has been set at a prospective 768 mln barrels, and at around US$50 a barrel on a capped carry, that’s nice money for Chariot.
What’s more, ENI hasn’t come into this project by accident. Rather it was chosen over two other potential partners specifically for its expertise in drilling this type of prospect.
It’s helpful of course that chief executive Larry Bottomley knows his way around the oil and gas business, having spent time at Hunt and BP among others. That experience has enabled him to time the seismic markets very well and acquire lots of normally expensive data at very cheap prices.
And the seismic will be used to help Chariot zero in on those big prospects.
“The focus of the company is to get exposure to transformational reserves,” he says.
In this day and age that means offshore, and often in areas of the world that aren’t yet fully developed as oil and gas provinces.
Thus the Moroccan portfolio, a Namibian portfolio and suite of Brazilian licences.
All these add up to a geographical focus on the Atlantic Margin, Bottomley’s favoured area of activity. And within that broad parameter he will pick and choose his jurisdictions according both to prospectivity and to the political and fiscal environment pertaining in the relevant sovereign state.
“The company retains its elephant-hunting capacity, but the key is how we go about managing risk,” he says. “When we access basins we do a significant amount of screening work.”
In the initial exploration phases, as at Kenitra, the company ensures that it is the operator.
“That way,” says Bottomley, “we can control our own destiny.”
Then later, when the serious money is needed to sink wells offshore, partners will be brought in.
On this template, Rabat Deep is the most advanced, but underlining its flexibility, Bottomley has decided not to proceed into the first renewal period for Namibia blocks 2714A and 2714B, otherwise known as the Southern Blocks.
It means that the explorer foregoes its 85% stake in the exploration area in the Atlantic Margin, albeit the company has made an agreement for a ‘back-in’ for a 10% interest in the blocks.
Chariot can exercise its option at its own discretion for no consideration, following the drilling of the first exploration well in each licence.
The decision comes after Chariot couldn’t reach a farm-out deal to bring a partner into the project.
“While it is clearly disappointing that we were unable to attract a partner on the Southern Blocks in the current environment, it is important that the company maintain discipline in the management of risk and the allocation of capital.
Namibia was behind Rabat in terms of development but ahead of Brazil, where seismic data is being interpreted, and Kenitra.
Having projects at various stages has advantages in terms both of time and cash management, although at the moment there is no real pressure on finances.
At the last year-end Chariot had US$25mln cash in the bank, with US$5mln of that earmarked for Morocco.
-- updates for Namibia decision--