Chariot Oil & Gas Ltd (CHAR)


Chariot dives on drilling rearrangement

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Shares in Chariot Oil and Gas (CHAR) plunged 14% as it issued a revised timetable for its prospective drilling, while confirming that the Tapir South-1 well in Namibia had been plugged and abandoned.

However, chief executive Larry Bottomley stressed the revised approach would help to further de-risk the drilling targets. "We believe all our assets have the potential for giant discoveries, we have a focused strategy and we are committed to realising the value in the portfolio," he stressed.

In an operational update, the Africa-focused oil and gas exploration company reminded investors that over the past year, it had drilled two exploration wells and acquired 3,500 square kilometres of 3D seismic data in Namibia; acquired an exploration licence and 3,500 square kilometres of 3D seismic data in Mauritania; and secured three additional exploration licences in Morocco. As a result, its net acreage base almost doubled to approximately 46,000 square kilometres.

In Namibia, the partnering process in the Northern Area has been initiated with the aim of drilling with a partner in 2014. The Zamba prospect was confirmed as the priority target, with gross mean unrisked prospective resources estimated at 375 million barrels (mmbbls). The Central Area partnering process will be initiated in the third quarter of 2013, with the aim of drilling with a partner in 2014.

The two principal prospects have gross mean unrisked prospective resources estimated at 1.1 billion barrels and 570 mmbbls.

In the Southern Area, the company has identified a new play following the drilling of the Kabeljou-1 well. Maturing this play will require additional 3D seismic data, and an acquisition programme is being planned for 2014.

Drilling in Mauritania was targeted for 2015, while drilling in Morocco was forecast for 2016. Chariot confirmed the Mauritanian play may have leads with resource ranges similar to the analogous Banda field, with reported resources of around 300 million barrels of oil equivalent (mmboe), with a resource update planned for the first quarter of 2014 after the interpretation of 3D data.

In Morocco, a mapped lead had a gross mean prospective resource estimated at 400 mmbbls.

"In acquiring our licences in Mauritania and Morocco [in 2012], we demonstrated our ability to secure early access to further quality acreage in areas that are receiving increasing interest from the oil and gas industry," commented Bottomley. "We will continue to pursue new venture activities as this is an important ongoing value-creation catalyst for our business."

Chariot's cash position at 31 December 2012 was $68.3 million (£44.1 million), with all contractual licence commitments fully funded through 2014.

"Chariot has a track record of securing industry finance and will continue to seek partners for its assets in order to distribute risk and provide additional funding for the further exploration and development of its portfolio," the company stated.

Bottomley added: "Chariot's goal is to create transformational stakeholder value through the discovery of material accumulations of hydrocarbons.

"The company's strategy to achieve this goal remains the same: Chariot will continue to explore in new or emerging hydrocarbon provinces, take large equity positions in the early phases of exploration and manage risk through levered partnering, portfolio diversity and the application of technology. The company is committed to applying capital discipline throughout all of its projects."

Interactive Investor view

Firstly, cash is king - Chariot is funded through to 2014, with the aforementioned $68 million at the end of 2012. It has commitments to spend another $40 million in 2013, with $28 million still remaining for any other opportunities that may arise. The minimal risk of a placing is sure to settle some nerves.

Secondly, more news will keep the explorer in the spotlight: it reiterated that an update to the prospect inventory in 2714A in Namibia is expected at the end of March.

Shares in the company have lost about fourth-fifths of their value over the past year.

Analyst view

Analysts from broker FoxDavies stated that the update underlined the Chariot's drive to diversify away from Namibia and reduce exploration risks.

However, they also pointed out there was unlikely to be any real activity until 2014.

"Still, the company is making significant progress towards a very full dance card from 2014 onwards," they commented.

Malcolm Graham-Wood, analyst at VSA Capital, was much more pessimistic on the stock: "We have been negative on Chariot since the start of 2012 and the poor drilling results so far support that view.

"Despite management changes and additions to the portfolio, Chariot remains a long-term prospect for investors. Given that drilling will not start until next year we do not feel that it is worth investing in at this time."

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