Courtesy of BigBiteNow The enclosed document below is a cost analysis for subsea infrastructure development. It has a lot of detail on the sort of considerations needed in establishing the capex costs for such a project as Chariot is proposing. Pages 188-191 demonstrate a 2007 case study on a typical subsea development with manifolds and subtree assemblies like the one Repsol and Chariot has now outlined. Total capex is set at $169m However, the study only allows for 15km of flowline costs and umbilical cords aren’t long enough. Plus this project requires 4 subsea-trees, where as there are 3 in the case study (+$4.5m) I have made these adjustments and the adjusted capex figure on that simple basis comes out at $315m. If we apply inflation to this figure then we are at $385m. However, the case study is for an installation in deep water at + 1,370m where as Anchois is in shallow water at 388m. Plus costs for this type of work are reducing as the technology has matured over the last 12 years or so. Therefore, i would feel safe reducing this figure by 15%. That gives a total capex of circa $330m To that we then need to add in 2 more wells to achieve the 4 well phase 1 development scheme. So another $28m although the development plan for Repsol does show that they could achieev production from 2 wells. Total cost now sits at circa $358m That would deliver a 90MMcf phase 1 development scheme of 16,000 bopd equivalent but at the current lower end $7/mcf netback, that would deliver $230m in netbacks for phase 1 and payback in circa 18 months, and plenty of cash to drive the second phase 2 90mmscf development. I recognise that the calculations are not accurate but i am merely seeking to de-risk the play and establish achievability, and from what i can see the Morrocan as market is needy enough and has such excellent pricing, that such a development at Lixus is very much on and partners won’t be hard to find. [link]
Courtesy of BigBiteNow Further to my earlier post regarding the already proposed and defined 2 well development plan for Repsol, I took a closer look at the likely costs that could be expected to get such a field into production. Firstly, there is the appraisal well. Chariot have already been involved in a drill off Morroco with the Rabatt Deep 1 well. That well whilst is far deeper water than Anchois-1 (1,110m v 388m), was drilled to to a depth of 3,180m in 48 days. That’s very loosely about 66m a day. Anchois-1 was drilled to 2,435m but the appraisal well is planning to test the Gas Sand C structure, which is deeper but slide 18 of the latest presentation demonstrates that the Anchois-1 well drilled deeper than that already but it was outside the line of Gas Sands C. In order to create a safety margin, if we say that they will drill the same depth again, which is unlikely, then at 66m a day the drill should take around 37 days. If we add in 20 days for completion, then we are at 57 days. The enclosed June 2018 presentation (slide 6) demonstrates current drill ship costs. Remember RD-1 was drilled by the drill ship Poseiden. So there is form. On that slide the current day rates for such ships is around $200k. At 57 days we are talking around $11.5m for the appraisal drill. If we add 20% for contingences then we are at $14m. Now to achieve that same goal Chariot gave away 40% and operatorship to ENI, but that was a wildcat drill with no previous successes. Lixus has a proven discovery with a known minimum 100BCF reserve applied to it by Repsols team. The process to establish the best route to market and indeed the market that it will enter will demonstrate the feasability of the development plan prior to a partner being sort. Said partner isn’t going to need 40% and operatorship to be willing to carry that sot of appraisal drill cost, given the existing information at hand. The two scenarios are therefore completely different. Between the information in those 2 posts, there is enough evidence to demonstrate that the project is feasible, has sufficient known reserves, proven by the previous owners, and that the appraisal well is cost effective. If those factors are known and accpeted, then the 2-3 month news cycle here will be sufficiently positive enough to allow a substantial re-rate from these levels, which itself will give Chariot greater options for the funding of the appraisal well and the securing of a partner for the development. [link]
Courtesy of BigBiteNow I have been taking a much closer look at the Chariot Lixus license in order to gauage their chances of success. I appreciate that LTHs here are a little dubious as to their chances but from what I have seen the asset looks very strong given its geographical location and proposed market. The enclosed slideshow is a previous project report for a field plan conducted for the previous Repsol led partnership. It demonstrates that there was a clear plan to develop the play as a 1 field 2 well play with futurer tie ins. This is highly likelly driven by the high netbacks that can be achieved in the Morrocan market and is essentially what Chariot are now proposing. The plan describes a subsea installation with 1 manifold and 2 subsea well satellites. The author describes the current expected reserves to be 100BCF from Anchois 1. The only potential negative I can find is the comment about "potential restrictions with gas bearing sands detected. The selection of the subsea technology is described as follows ; “The Field Development contains a Subsea, Offshore Flowline and Pigging Line infrastructure. The concept selection carry out is a Subsea System tied back and exported to Onshore Plant (“Subsea Wells Tie-back to Onshore Plant”) via flow lines and control umbilical.” “The field itself shall be designed with flexibility for new tie-in of the new discoveries further in the area.” So very similar to Chariot and it looks very much like they are looking into the very same plan that Repsol has already put together back in 2011. It goes on to say that the design allows for ; “A considerable reduction of the CAPEX, due to a minor controls requirements and the installation Cost, in contrast the Net increases in Oil production” The english translation isn’t perfect but the gist of what he is saying is very clear. In essence there is already a very simple field development plan in place that requires just one further appraisal well (that is planned by Chariot for next year) in order to achiev this field development plan and go into production. There is already a Repsol recognised 100BCF reserve from Gas sand A and B. It is not going to take a great del more success in and around the Anchois discovery and its satellites to achieve the phase 1 parameters, and the above scheme allows for a low cost solution, which can have additional wells added to it. It isn’t the whole story but this plan at the very least demonstrates that the feasability study is going to demonstrate an affordable solution even with limited further success with the drill bit. With netbacks in Morroco running at $8-9/mcf, a very profitable simple field development plan looks likely, and that isn’t priced in here at all. [link]
Courtesy of BigBiteNow Another note worthy fact from SDX is that the centeal processing facility and 10km long pipeline in Egypt is costing SDX $18.5m for their 55% share. Assuming capex is proportionately shared out then the total facility would be around $34m. That’s a ball park figure but gives a good idea of the cost and it is certainly no deal breaker. There are of course the costs to add to the subsea flowline and drill costs to consider but then Chariot has 75% working interest with which to play with also. Lastly, SDX has made some very good discoveries in Morroco and their success rate with the drill is very good indeed. However, their ; “Total (NET) Proved Plus Probable Plus Possible Reserves” across their entire portfolio, so Egypt and Morroco combined, comes in at ‘just’ 33BCF of which the high return Morrocan assets contribute around 6BCF. I say just because right now Chariot has a proven gas discovery (2C resources) that delivers NET (75% working interest) of 230BCF with major upside potential to come. That’s near 700% more than what SDX has taken minimum 4 years to achieve and they achieved it with one simple concession award from the Morrocan government and a maximum $1m initial cash outlay.
Courtesy of BigBiteNow Good morning. The market clearly hasn’t taken the time to fully appreciate what the Lixus concession and discovery truly means for Chariot Oil. I have seen several references here to SDX, a company I have also invested in and that currently operates in Egypt and Morroco. SDX is currently building a central processing facility in Egypt (not Morroco) with a gross plateau production rate of between 50-60 MMscf/d, with the conventional natural gas being sold to the state at a price of US$2.85/Mcf. SDX has a 55% working interest and is operator in this concession. Whilst the project is delayed there is much excitement for what this project will do to transform SDX’s fortunes by adding what will be circa 5,500 bopd net equivalent production to the business. However, it is in Egypt, a jurisdiction where the 75% ownership enjoyed in Morroco simply isn’t available. Nor is there a 10 year corporation tax holiday on production and the realised price is ‘just’ $2.85/Mcf. In Morroco, SDX operations enjoyed an average realised price of $10.33/Mcf in 2018 with netbacks estimated by Edison at the start of that year at between $8.5-9.0/Mcf range for realised prices of $10/Mcf. [link] SDX are no doubt delighted with their project in Egypt but be under no doubt, it would be a far stronger project if it was based in Morroco and creating far more excitement. With Lixus, Chariot have just that and then potentially a lot more. Yes risks remain and the Morrocan market has to be fully analysed to establish how much gas it can handle and at what sort of pricing but at netbacks pushing $9/Mcf there is plenty of headroom considering that the potential netback is some 315% more than the full prices SDX will be achieving from their processing facility in Egypt. That would be enticing enough if we were simply just comparing a like for like outcome. However, Chariot’s outline plan points towards a 70Mmcf/d phase 1 development. If they only achieved the 70Mmcf/d outcome then i am in, i am present, i am invested, because of those potential netbacks. However, that phase 1 development plan has room to expand to 90Mmcf/d if the deeper Gas Sand C comes in, which carries risk but nothing too testing. A great percentage play given that the 70Mcf/d is enough. But if that weren’t enough then we have phase 2, which can deliver another 90Mmcf/d if the satellites around Anchois come in, and has the added bonus of a low risk Anchois N potentially contributing 238BCF of the anticipated 674BCF needed for this phase (so 35% of the total) and currently holding a 51% chance of success. However, the investment case doesn’t require 90Mcf/d from phase 1, nor phase 2, nor Anchois N, nor the 5 eastern prospects, or even the reported “giant scale prospective resources in the sub-Nappe” that are being reported. All of that is free carried and a bonus. I very much like.
Courtesy of BigBiteNow @topsharepicks whilst nobody outside the company can say for certain that “big farm in” news could not come at any time, the likelihood in Brazil, which i have seen mentioned on this BB several times of late, is that this will not happen until the AP-1 block has been drilled by Shell and its partners. Slide 20 of the latest Chariot presentation is clear ; “Partnering process initiated for a partner to join in drilling to follow a play opening commitment well to be drilled by a third-party in the neighbouring deepwater block” Now whilst there may be a partner out there willing to commit prior to this, it really doesn’t make commercial sense to do so when they can wait until Shell have drilled and establish a better idea of the chances of success. The same is being played out by Chariot themselves with the MOH-B and KEN-A ‘potential’ drills. That Shell drill is not currently planned for 2019. You have every right to believe and argue whatever case you may wish but personally I believe the Brazil angle to be premature and an unnecessary distraction from the Lixus announcement. I didn’t buy in for Brazil but i did buy in for the potential revenues and developments that a successful Lixus will open up. However, I am much more excited about the further Lixus drills and potentially what it could do for opening up the MOH-B play. As an example, the very last slide of the April presentation from Chariot states that Anchois N has the potential to add a further 238 BCF in 2C resources with a 51% chance of recovery. Now that is an internal estimate and Anchois N is till to have a CPR carried out on it but that is included in the works due over the next 2-3 months, and given it has by far the greatest chance of success assigned to it, could well be a very interesting development over the next 2-3 months. To drive that point home, I refer you to slide 8, which is the outline development plan that has been put together to date. Phase 2 currently only considers the 3 satellites that have a CPR on them, and yet it is capapble of delivering a further 90 mmscf/d. However, the slide clearly states ; “Anchois N yet to be audited and may materially impact on a Phase II development” So the satellite with the current highest assumed chance of success and circa 238 BCF in potential gas pay, isn’t even part of what is a potential 180mmscf/d field development plan. Such a development reduces the need to succeed on the satellites and reduces the risk of the overall play. It is these potential game changing positives that will potentially come out in the studies that are due in the next 2-3 months. They have the potential to deliver a very large field plan that will be selling into Chariot’s highest margin market by far and will enjoy a 10 year corporation tax holiday on production, something Brazil doesn’t get near. That is why i am here for Lixus and not those ‘big farms ins’ which are a red herring and a distraction.
Courtesy of BigBiteNow I have taken a position in here having previously bought SDX, so my understanding of the Morrocan gas market is good and their pricing structure makes the Lixus block a very attractive asset. 75% ownership of 70mmboe of 2P resources for just $1m commitment is significant. I do however believe that the talk of the Brazil farm in is far too early because the company and highly likely any potential partner, is waiting for the results of the Shell drill on the neighbouring block AP-1, which as far as I can find is currently not scheduled for 2019. Mohammedia (MOH-B) looks far more likely to be the front end ‘giant’ scale drill that finds a partner and a path to being drilled, but it is not the key reason i have decided to buy in. This is all about Lixus, which is a deal that has and continues to take the market by surprise. From what I can see the next 2-3 months actions are designed to set up Anchois as a commercial find through a series of studies that will turn those 2C resources into proven commercial ones and attract a quality partner for what is an appraisal well. Hence the drive to establish the development plan and the Morrocan gas market. There is risk and I am wary of the managment’s performance to date. However, the asset is that good that on a risk reward basis that I find it compelling enough to take a position. What’s more the discovered resources sit within gas Sand A and B and are to date capable of supplying 70mmscf/d for over 10 years. That is without the as yet not drilled Gas Sand C, or indeed the other 9 prospects that are noted on the block. So everything else could fail and they could still bring home a 70mmscf/d discovery. If as suspected the development plan and gas market studies deliver the sort of returns I expect, then that will be the key catalyst here front end and not Brazil or even MOH-B. They are pure bonuses later down the line, Lixus is more than enough for now. So I am a buyer.
Malcy's Blog: Oil price, Chariot, JOG, Soco, IOG And finally Seems like Malcy fill follow the whole journey to production and to a much higher shareprice with us. Surely he will not be the only one. [link] CharCharChar.png1263x949 194 KB
Malcy's Blog: Oil price, Chariot, JOG, Soco, IOG And finally Vox Markets Versarien, Strategic Minerals, Emmerson and Malcy on O&G - Vox Markets On today's podcast: Versarien sign a term sheet with Beijing Institute of Graphene Technology. Strategic Minerals provide an operational update. Emmerson sign a heads of agreement for 100% Offtake. Interesting chat by Malcy from 38 mins on about the Price of Oil, Fund mgrs, Bond market, Aramco, Chevron offer for Anadarko, etc Talks Chariot from 50:30 mins on
Future Direction Agree PM, it was more wishful thinking rather than the commercial reality of what is going to work best. A good deal will speak louder than any words can and will set us on a new course.
Future Direction dctiffield: I would feel a lot more comfortable with the new strategy being accompanied with new leadership. LB and gang have a long hill to climb to gain any credibility or more importantly trust. I think its too late for any changes in leadership at this stage to be honest. It will also be counterproductive and lead to another period of hibernation. We need a deal that is valued by the industry to wake the market up.
Future Direction You’re right about SQZ and a producing asset. This could transform our prospects here, no doubt about that. I also have the same question regarding who bought and sold that significant number of shares!! I don’t sense it was LTHs bailing out on a marginal SP increase or just savvy day traders cashing in on a bit of news. I would feel a lot more comfortable with the new strategy being accompanied with new leadership. LB and gang have a long hill to climb to gain any credibility or more importantly trust.
Future Direction A well thought out post. Many thanks. I still have reservations about the current management. When looking at how they have performed I ask myself “what would I do?”. A huge opportunity to acquire a producing asset in whole or in part during the relatively recent collapse in the oil price was missed. We had available cash and could now have all or most of our G & A costs covered. It’s what I would have done as an insurance policy. I appreciate that they acquired seismic at a very good rate and drilled at the bottom of the cycle and everything would be different if they’d struck oil. Still unsure if they’re unlucky (multiple times) or just not very good. Time will tell. All the best
Future Direction preciousmaj: Nearly 3 years on and SQZ have a market cap of £312m For Chariot £312m would be as much as 85p per share (+2000%), coincidentally matches exactly FinnCaps unrisked NPV10 for our 70mmboe Anchois develoment project. Who knows, this time next year we might get there!
Future Direction I agree with both of you. This deal does seem too good to be true especially when the share price hasn’t reacted as it should have done. Its important to remember that things can change very quickly on AIM. I remember mentioning the idea of buying into a producing asset to get some revenue at the 2016 AGM (see notes: AGM thoughts). I told Larry that SQZ had a market cap much lower than Chariots but was double at the time of the AGM because they have bought in to a producing asset. Nearly 3 years on and SQZ have a market cap of £312m and CHARs market cap is around £14m - if I had sold my Chariot holding and bought Serica then I would be in a much better place now Long term holders have been forced to be patient but confidence will return in the near future in my opinion. I am still wondering who bought and sold the 100m shares in the last week.