Chariot Oil & Gas plc (LON:CHAR) today highlighted its strong cash position, having revealed a transformational Moroccan acquisition last week.
The company said it ended 2018 with US$19.8mln of cash and was debt free. It is fully funded for current work commitments which are low, at less than US$1mln.
Chariot participated in two drill programmes in 2018 and while neither proved successful, the company noted that they were executed at the ‘optimum point in the cost cycle’. Its share of the Rabat Deep well was covered at zero cost, while the Prospect S offshore Namibia was the lowest cost deepwater well drilled last year (at US$16mln it was significantly under budget).
The pre-revenue explorer reported a US$15.1mln loss for the year, including US$10.8mln of impairments against exploration assets and US$3.3mln of administration expenses.
Chariot retained a portfolio with significant exploration potential though, as FinnCap analyst Jonathan Wright points out, the group’s shares don’t credit the company with any value for these assets.
In a note this morning, the analyst said: “The shares still trade at negative enterprise value, suggesting the market ascribes no value to its extensive acreage position.
“The market tends to shun companies without visible drilling plans or funding. However, Chariot has a strong partnering history and data rooms open covering a range of prospect/play types.”
New acquisition opens lower-risk growth
Chariot last week captured the attention of investors, however, with its new acquisition offshore Morocco.
It picked up the Lixus licence which includes the already discovered Anchois gas project – comprising some 307bn cubic feet of contingent gas resources and more than 600bn cubic feet of additional resource upside potential via low-risk follow-up exploration.
Lixus opens up a new kind of growth strategy for a company that has in the past focused on higher risk or ‘wildcat’ frontier exploration prospects.
The company noted that the assets came with minimal initial commitments and that future development is expected to deliver strong returns and significant cash flow.
"Chariot has had an exciting start to 2019 with the recent award of the Lixus licence offshore Morocco.
“The addition of discovered resources rebalances the portfolio providing a near-term development opportunity, low-risk exploration upside and ultimately a sustainable footing to continue to pursue our high impact exploration portfolio.
“We will be looking to source strategic partners to develop the Anchois-1 gas discovery.”
At the same time, Bottomley noted that Chariot is also still committed to advancing its high impact exploration prospects.
He added: “The shift in the balance of risk and reward with the addition of the Lixus licence fulfils the company's goal of seeking an opportunity to generate cash flow.
“We now have a diversified inventory of giant, high margin, high-risk prospects complemented by a high value, low risk, low-cost gas appraisal project in an emerging gas market supported by growing energy demand.
“With our exceptional team, supported by an enhanced board and strong balance sheet, we believe that the year ahead offers an exciting opportunity for progressing all areas of the company's portfolio."
In a note to clients, analysts at SPAngel commented: “Today's results are less about the historic look back, and more about the outlook, and in this respect, we believe that the Company has identified where it needs to be heading.
“Furthermore, today's announcement underlines the increased diversity in its asset base and the Company's focus on maximising its opportunities through the judicious use of cash resources.”
They added: “While today's announcement does not attempt to address the various chances of success, and the work that is being undertaken to maximise that, and nor should it, but this statement it does underline the steps management is undertaking to maximise the opportunities of creating value at the drill bit with the resources that it has at its disposal.”
In afternoon trading, shares in Chariot O&G were 1.3% lower at 3.95p, retreating after nearly doubling in value so far this month following the Morocco license award.
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