Chariot
(Thanks to Malcy's blog)
December 11, 2023
When I wrote up the Chariot/Energean deal last week I said that I would assess the market reaction, speak to the company and add more comments as pertinent. I received an interesting mix of inbound messages and accordingly decided to put those points to Julian Maurice-Williams, Chariot CFO.
I started by asking him about the deal and to deep dive into some of the details and personal thoughts gained in the months of negotiations as well as regarding costs and timings of the process?
- We are very pleased with this deal. Energean is a FTSE250 company with a strong track record of successfully developing large offshore gas projects. They are both experienced and proactive and like us, are also keen to get after it with developing Anchois.
- We have secured a great partner, that like us, believes there is significant upside potential unaccounted for with this project, and we now have a financial pathway to reaching first gas, that doesn’t see equity holders diluted further. We both have a common goal – to deliver the development of the project in a safe, cost efficient and expedited manner.
- In terms of next steps, rig negotiations are advancing, the technical teams are working collaboratively on planning, and will look to undertake an appraisal well at Anchois as soon as possible in 2024. As outlined, the appraisal well is a multi-objective well which will be a future producer. Both sides plan to optimise the development further, appraise newly discovered gas sands and drill two exploration targets, aiming to increase the resource.
- In terms of other catalysts, we will be commencing with a drilling programme on the Loukos onshore licence in the new year and our team is looking to commence this asap. In addition, we also have plans to conduct a seismic acquisition programme on Rissana.
- Possibly also worth noting the current macro environment, which for exploration remains somewhat challenging. The fact that the company received multiple offers is testament to the assets.
- All these things aside, though, we are very excited about the agreement we have struck with Energean. We are aligned in the development plans and in the view that this project could be larger than initially anticipated and we now have the financial and operational framework in place to get the project to first gas, delivering cash flows and value for all our stakeholders.
I wanted to ask Julian about the details of the carry, it seems to be different to other industry deals of late. He responded with the below points about the terms of the transaction:
- While Chariot has taken dilution, we believe we are unlocking a potentially much larger development than initially thought, with significant further upside.
- We get cash into the business upfront, retain a material stake in the project and most importantly we potentially get a full carry to first gas.
- Also, it is a non-recourse loan repaid through 50% of net revenues from the Lixus licence which only commence once we get to first gas and start generating cash flows. So there is no cost to us until all the milestones are achieved and the loan provides us with the potential to start paying dividends to shareholders once first gas is reached – which wouldn’t necessarily be the case if we decided to use other less flexible financing solutions.
- We also see 7% above SOFR as a very competitive rate – you don’t get this elsewhere – as seen with other recently announced bonds in the sector.
- Also, Chariot shareholders get a royalty and a choice between a US$50m convertible loan or 3 million ENOG shares as part of Energean opting to take the further 10% (which would include income from ENOG’s dividend programme).
I would like to thank Julian for his time, I hope that these answers go a long way to ensuring that the questions put by investors have been adequately covered. I remain a strong supporter of Chariot and believe that the assets in the portfolio are worth significantly more that the current share price and it will undoubtedly stay in the Bucket List come January.
