Chariot Oil & Gas Limited (AIM: CHAR), the Atlantic margins focused oil and gas company, today announces its audited final results for the year ended 31 December 2019.
2019 and Post Period Highlights
Corporate strategy updated to fit with evolving market dynamics:
· Risk appetite of investors and the industry has evolved.
· Exploration in frontier regions has fallen out of favour.
· Need for nearby / adjacent discoveries to unlock basin potential.
· Importance of ESG has increased with societal preference for low carbon energy feeding through to investor sentiment; upstream energy projects now need to demonstrate Environmental, Social and Governance ("ESG") credentials.
Lixus - A material, high value gas project with a route to free cash flow:
· Lixus Offshore Licence, Morocco, containing the Anchois Discovery awarded to Chariot as operator with 75% interest, Q2 2019.
· Anchois Discovery, Anchois Satellites and Additional Prospects offer potential for a low risk near-term development opportunity and material, strategic entry into a fast growing Moroccan energy market and access to the Spanish and Portuguese gas markets.
· Strong ESG credentials of project support Moroccan energy transition and appeal to a broad range of partners in an evolving market.
· Anchois Field Development targets a production of 53 mmscf/d, which at US$8/mcf would deliver revenue of c.US$150 million per year, paying back development capex in 2-3 years.
· Attractive commercial and fiscal terms, with a 10-year Moroccan tax holiday from the start of production.
Scale of the Gas Development Opportunity:
· Independent Estimates by Netherland Sewell & Associates Inc. ("NSAI"), completed in 2019, suggests in excess of >2.2 Tcf (370 mboe) in 2C contingent and 2U prospective resources:
- Anchois-1 well gas discovery 307 Bcf with 2C contingent resource forms core of fast-track development case with deeper sand containing 116 Bcf 2U prospective resources making a combined 423 Bcf remaining recoverable resource.
- Anchois Satellites offer material tie-back opportunities with 588 Bcf 2U prospective resources. One of these, Anchois North, confirmed as the low risk priority satellite with 308 Bcf of 2U prospective resources and probability of geologic success of 43%
- Additional Prospects on-block offering exploration upside in excess of 1.2 Tcf 2U prospective resources
· Improved imaging on reprocessed 3D seismic data has further de-risked the existing Anchois and Anchois satellite prospective resource gas volumes.
· Chariot is also evaluating new leads identified during technical review, with companies participating in the partnering process. These leads have the potential to add further prospects to the portfolio when technically matured.
Monetising the Anchois Gas Discovery:
· Development Feasibility Study completed. Results confirm technically feasible with the potential for either a single phase or a staged development to commercially optimise access to different parts of the gas market.
· Subsea-to-shore development, two wells tied back to a subsea manifold, from which a flowline and control umbilical connect to an onshore Central Processing Facility ("CPF"). All current, off-the-shelf technology. Numerous examples of this development scheme being implemented.
· Drilling Environmental Impact Assessment ("EIA") completed and approvals received.
· Progressing pre-Front End Engineering Design ("FEED") work programme to optimise and reduce uncertainty in project cost, volumes and price to deliver potential partners and unlock debt financing.
· A highly experienced technical, operational, financial and commercial team with proven, recent operating capability.
Developing a low CO2 Moroccan gas business
· Moroccan Gas Market and Anchois Field Monetisation Assessment completed.
· Morocco has a fast-growing energy market with strong gas prices that underpins a commercially attractive project.
· Proximity to power generation and Maghreb-Europe Gas pipeline ("GME") which connects Morocco with Spain and Portugal offer numerous commercial options to monetise asset.
· In discussion with a broad spectrum of potential farm-in partners, multi-lateral lending agencies, debt finance providers, reserved based lenders, midstream service providers and downstream off-takers.
· Company has held initial discussions with l'Office National de l'Electricité et de l'Eau Potable ("ONEE"), the Moroccan state electricity provider, and the key players in the Spanish gas market.
Clear and focussed risk and capital management strategies:
· Cash balance of US$9.6 million at 31 December 2019 with no remaining work commitments.
· Annual cash overhead c.US$4.5 million, with a material decrease to c.US$2.5 million expected following an extensive cost-reduction programme - whilst retaining key skills and operational capability.
· No debt, strong record of capital discipline.
· Position of strength to respond to current market uncertainty related to COVID-19 and commodity price weakness.
· Firmly focused on monetising Lixus licence - asset fits what potential partners are looking for - discovered resources with ESG credentials.
· Board further strengthened with the appointment of Andrew Hockey (Q2 2019) as Independent Non-Executive Director. Andrew has extensive experience in the development and production of gas assets.
With the strategic focus on Lixus, the Company will only proceed with exploration if nearby adjacent drilling de-risks the basin sufficiently to generate partnering.
· In Namibia, three third-party wells, including one in the block adjacent to Chariot's Central Blocks, due to be drilled. With no remaining commitments, marketing of the remaining exploration prospects ranging from 284 - 469mmbbls of gross mean prospective resources will be contingent on results of this third-party activity in the basin.
· Post year-end Azinam gave notice of its intention to withdraw from the Central Blocks. Chariot remains committed to continuing to hold and progress the licence.
· In Brazil, commitment wells in neighbouring blocks are being monitored, progression of these projects is needed to trigger further partnering activity. Chariot holds no remaining commitments on the acreage.
· In Morocco, the Company is reviewing Mohammedia and Kenitra and will make a judgement based on prospectivity and the current market environment.
2020 Strategic Focus:
· Seek project endorsement, asset validation and de-risking through partnering.
· Complete a Pre-FEED analysis to define the Anchois Field development as a catalyst to unlock debt finance:
o Progress concept testing, selection and definition.
o Well engineering for production wells, reservoir model engineering and design of production test for first development well.
o Secure Heads of Agreement on Gas Sales Agreements with potential off-takers.
Larry Bottomley, Chief Executive Officer of Chariot, commented:
"Whilst the early part of 2019 marked a shift in the balance of our portfolio, with the addition of the Lixus licence, the latter half of 2019 and the start of 2020 has seen the Company re-prioritise its strategy, accelerating efforts towards monetising a major gas development project in Morocco. The asset has the potential to deliver near term cashflows and delivers a more suitable fuel source for global economies looking to transition to less carbon intensive energy sources. This re-focus has coincided with the impact of COVID-19 on the economic and operational environment. Chariot was able to respond quickly and implemented an extensive cost-reduction programme to restructure the organisation, ensuring the retention of key skills and the operating capability to deliver on Lixus, whilst enabling the business to preserve cash.
The Anchois Field development has strong ESG credentials and, when developed, will provide Morocco with a reliable domestic gas source. Gas from Anchois has the potential to form a fundamental part of the energy mix, aiding the country's transition from imported oil and coal in its energy consumption, with any excess gas exported via the GME to Spain. The studies undertaken have highlighted the technical feasibility and economic viability of a development and the gas market analysis confirms the potential to deliver gas into Morocco and/or Spain at a price that delivers strong returns on the capital invested. Reliable and plentiful supply of energy from a domestic source can enhance conditions for economic growth, particularly in such a fast-growing economy where energy demand is predicted to double between 2015 and 2030. A successful project delivery and development of a sustainable Moroccan gas business will act as a catalyst for jobs in Morocco and the overall wealth of the Kingdom. We look forward to continuing our already strong relationships with our partners at Office National des Hydrocarbures et des Mines ("ONHYM") and the Moroccan Ministry of Energy and building on our new connections with ONEE and Moroccan industry."