- Potential for drilling success on second onshore well
- Analysts target prices of 50p and 57.7p
Chariot (CHAR:7.1p), the Africa-focused transitional energy group, has announced results from the first well of a two-well drilling programme on the Loukos Onshore licence in Morocco.
Although the reservoirs at the Gaufrette prospect did not deliver a material gas accumulation and are therefore deemed uneconomic, the presence of gas and reservoir quality are positive for future exploration in the area. Importantly, it’s not material to the investment case. Analysts at Auctus Advisors had only embedded a risked net asset value (NAV) of 2p a share in their financial models.
The rig will now move onto the Dartois target, which is fully independent of the Gaufrette prospect. Analyst James McCormack at broker Cavendish believes that success at Dartois has the potential to unlock a trend prospect within a P50 resource of 20bn cubic feet of gas. He values the gas on the Loukos licence at $4-$5 per million cubic feet (mcf) on a gross unrisked basis, meaning that success at Dartois could be worth $80mn-$100mn (£63mn-£79mn). Chariot has a market capitalisation of £76mn.
Potential for Dartois to deliver immediate returns
Bearing this in mind, McCormack notes that the Loukos licence is located near existing infrastructure and the industrial offtake market, where Chariot has the potential to rapidly monetise production. A successful gas discovery could be brought on stream in early 2025. The industrial gas market close to the Loukos licence is significant and undersupplied, too, which means that production could demand gas prices of $16 per mcf, amongst the highest globally, says McCormack. This, combined with a highly attractive fiscal regime (25 per cent government take), makes for a highly economic project.
Both Auctus and Cavendish are leaving their 50p and 57p target price unchanged, or more than seven times the current share price. Auctus also has a sum-of-the-parts valuation of 28p a share, or four times Chariot’s current share price. Accounting for 42p of Auctus’ core net asset value, the largest component of the valuation relates to the company’s flagship Anchois gas project. I highlighted the methodology behind the Anchois valuation after Chariot announced a farm-out with Energean ( ENOG), a FTSE 250 company that has a proven track record of successfully developing large offshore gas projects (‘Chariot’s transformational farm-out is underrated’, 7 December 2023).
So, with the current share price significantly undervaluing Chariot’s retained interest in Anchois, and ignoring any potential for success at Dartois, I now rate the shares a buy again.
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