PCL trading halt pending the making of an announcement in relation to Cormorant results clients2.weblink.com.au pdf_2%5C02024848.pdf 285.30 KB 17 days post spud. Looks like we will be drilling earlier than expected.
Poll: How do you think CHAR will go into Prospect S? Thank you to everyone who has participated in the poll. It seems some new names have appeared just to take part and maybe to sabotage the outcome However, the results are very interesting, most believe that there will not be an equity raise and 60% believe that there will be some form of partnering between now and the start of drilling in a few weeks time. Taking the above into consideration, also factoring in my personal view that there is not enough time to conduct an equity raise at this stage and the fact that Larry has confirmed that there are no plans for a raise before the drilling of Prospect S – I feel that there are only 3 possible scenarios going into Prospect S: No farmout & only drill Prospect S - If we do not conclude any further partnering then we only have enough funds to drill Prospect S so will have to shelve plans to drill a second well regardless of the result of the first well. Farmout & drill Prospect S - If we conclude a farm out in the next few weeks, we can bank the cash and drill Prospect S. If this fails then we do not drill the follow on well, we retain the cash that was allocated to drilling the second well to help towards drilling costs for Morocco. Farmout & drill Prospect S + W - If we conclude a farm out in the next few weeks, we drill Prospect S. If this is a discovery we will drill Prospect W back to back. My view is that we will farm out 30% equity for $24m – this allows us the option to drill both wells and have enough cash to take forward. The management will be taking a longer view than shareholders and will most likely factor in the possibility of a cash injection for the Moroccan drilling program. Of course this is only my opinion and I could be way off the mark. As stated before, if the Tullow operated PEL 37 has been valued at $47m where the main prospect has a 15% chance of geological success and is targeting 124mmbbls then you would expect CHARs PEL 71 where Prospect S has a 29% chance of geological success and is targeting 459mmbbls + greater follow on potential to be valued MUCH higher. I now think $80m is a fair valuation at this stage even though substantial sums of money have already been invested in the block. Larry has said that the intention is to deliver a partner with the commercial terms appropriate for the quality of the opportunity. All of the above ignores the possibility of a farmout outside of Namibia that would also be interesting. I am crunching some numbers on a spreadsheet for the above scenarios and will upload this soon.
Cormorant-1 Impact You’re right, Prospect W Drilling will only proceed if Prospect S is successful but there would not be enough time to raise cash in-between those wells because in the success case we would drill W immediately after Drilling S to benefit from operational synergies. (Final results 2017). Successful partnering on these near term wells will also offer the potential to liberate funds to extend the current drilling programme. In the Central Blocks in Namibia, for example, with success in Prospect S and with partnering, Chariot will aim to drill the neighbouring Prospect W (284mmbbls gross mean prospective resources) back-to-back and, by using the same rig, to benefit from cost reduction through operational synergy. Similarly, at Kenitra-1, with success and partnering the Company would aim to drill LKP-1a (350 mmbbls gross mean prospective resources) back-to-back in the neighbouring Mohammedia Permits. It is thus that through the strong financial position of the Company and potential additional partnering Chariot could drill up to a further two prospects in the near term.
Cormorant-1 Impact Am I right or wrong in assuming that Prospect W drilling will only proceed if Prospect S is successful? At that point it is very easy to raise even hundreds of millions of dollars from fixed income seekers by making a bond issue! That is why Prospect S is so important for CHAR and its shareholders in de-risking not just the rest of PEL 71 but the whole portfolio!
Cormorant-1 Impact Absolutely TexDrilla but as it stands we have 65% equity and require a minimum of $12,235,000 from somewhere to drill the wells back to back. A farm out like you say will reduce our equity position in the licence and more importantly the share of drilling costs
Cormorant-1 Impact Important to note that if we farm out our cash position would increase and our share of costs would be reduced. For example if we farm out 30% for US$15 million our remaining share (35%) of costs to drill prospect S would be reduced to ~US$10 million (0.35 * US$25m + 0.35 * 0.15 (Namcor & Ignitius carry) * US$25m). So following a 30% farm out of PEL 71 for US$15 million and drilling S&W for a gross cost amounting to US$50 million our share of cost would amount to ~US$20 million and we would end up 2018 with ~US$21 million (28.4 +15 -10 -10 -2.4).
Cormorant-1 Impact I have just done some calculations on the amount of cash that we would require to drill Prospect S + W back to back. It seems that we need a minimum cash recovery of $12,235,000 through a farm out and this could reduce our cash balance to zero by the end of the year if the total drilling cost is around $25m for both wells. Drilling costs are estimated to be around $20 to $25m but management would need to be cautious when costing. H1 2018 Cash Balance = $28,400,000 H2 2018 G&A Costs = ($2,400,000) Prospect S Share of Costs = ($19,117,500) Prospect W Share of Costs = ($19,117,500) H2 2018 Cash Balance = ($12,235,000) Prospect W will only be drilled if S is a discovery but I don’t think there will be any time in between the first discovery and drilling the second well for an equity raise. The only way that we can recover substantial funds is through a farm out or two. I think we need to recover a minimum of $15,000,000 through a farm out. According to the poll, most believe that there will not be another equity raise before drilling starts and it’s too late to conduct one now anyway IMO as drilling is due to start in a few weeks time. In that case, the management must be pretty confident about securing funds through partnering unless plans to drill Prospects S + W back to back have altered without shareholders being informed.
Poll: How do you rate CEOs performance We currently own 65% of Central Blocks where we are about to drill the high quality low risk 29% chance of success prospect S with 459mmbbls of pmean prospective resources and more than 2bnbbls upside potential in follow-up prospects. Partnering discussions ongoing with sufficient cash on hand to drill on our own strenghening our negotiating position. We will only close a deal with the commercial terms appropriate for the quality of the opportunity. I agree with the majority having voted on the prior poll about how Chariot will go into prospect S and remain confident of Chariot farming out on favourable terms while retaining a majority equity in the license. To early to say but based on my confidence in Chariot striking one or more favourable deals in the very near term the CEO’s performance in regards to farm-out process of PEL 71 would be very good in my opinion.
Poll: How do you rate CEOs performance I think it is too early to ask this question because the process as a whole is not yet completed. Fund raise timing plus discount versus an unknown partnership agreement… The fact that it is taking so long is irrelevant, what matters is the quality of the outcome.
Poll: How do you rate CEOs performance Not in a position to tell us when the farmout will happen = v average TP
Cormorant-1 Impact I don’t think that’s a stumbling block IMO, the follow on well will only be drilled if the first well is successful. If Prospect S is successful then partners would be more than willing to fund Prospect W IMO.
Cormorant-1 Impact I think the big stumbling block in farm out negotiations is the ability to get a carry on a follow up well on the license. In view of the relatively high chance of success it would be one way of breaking an impasse, to get a part carry now and very much higher carry when derisked by any well results. Because the license is huge and there is a vast amount of 3D seismic this must be very attractive for a success case for a farm in partner. I feel there is a deal to be done. Jimmy
Poll: How do you rate CEOs performance How would you rate CEO Larry Bottomley’s performance in regards to the handling of the farm out process of the PEL 71 block in Namibia? Please provide a reason for your answer. (1:Very Poor 2oor 3:Average 4:Good 5:Very Good) 1 2 3 4 5 0 voters
Cormorant-1 Impact TexDrilla: I believe US$5 million for every 10% is the minimum price they are looking for. I am happy with this being the minimum price that they would be looking for but I would expect the valuation to be much more than $50m for the reasons that I have stated before. You would expect many offers at this valuation - if PEL 37 has been valued at $47m where the main prospect has a 15% chance of geological success and is targeting 124mmbbls then you would expect CHARs PEL 71 where Prospect S has a 29% chance of geological success and is targeting 459mmbbls to be valued MUCH higher. PEL 37 has less than half the follow on potential that PEL 71 has also. If management were valuing PEL 71 on par with PEL 37 then I believe we would have a few offers already as it would be a no brainer especially for companies who have acquired acreage in the region in the past 12/13 months. Again, this would suggest that they are demanding a higher price and I don’t blame them: Investor Conference Call - Q&A Transcript Larry Time is of the essence and so for us it’s delivering a partner with the commercial terms that we think are appropriate for the quality of the opportunity
Cormorant-1 Impact In my opinion a fair valuation on our or Tullows license would be ~US$50 million. That is because PCL farmed out 10% for US$7.7 million but a 10% carried interest. So if we deduct ~US$3 million (~10% of drilling cost) that would result in a US$47 million valuation for PEL 37. On our license PEL 70 we currently have a cost pool amounting to ~US$50 million, so all in all I believe US$5 million for every 10% is the minimum price they are looking for.