According to City forecasts, Chariot Oil & Gas (LSE: CHAR) is worth 126% more than its current valuation.
The five sets of analysts that cover the company, Northland Capital, Westhouse Securities, finnCap, Jefferies International andCantor Fitzgerald have anaverage price targetfor Chariot of 22p for Chariots shares.
But is this a realistic target?
Chariot is an asset-rich company. However, as of the yet, the oil minnow isnt producing any revenue. The company is relying on farm out deals and share placing to raise cash.
Nevertheless, Chariots management is pursuing a low-risk strategy in the development of the companys assets. This approach includessome useful farm-outs with larger partners.
Australias Woodside is Chariotspartner in Morocco. Woodside has a 25% working interest in Chariots Rabat Deep prospect. Funds received from this farm-out have covered nearly all of Chariots Rabat Deep back project costs and Chariot is now looking for another partner to help drill the well.
The Rabat Deep JP-1 prospect contains an estimated 618 million barrels of oil.
Over in Mauritania, at Chariots C-19 license, the company has also de-risked the project and recovered back costs through a farm-outdeal.
Chariot and its primary partner on the prospect, Cairn, believe that there are 588mmbbls ofresourceat the C-19 license. Once again, Chariot is currently seeking a drilling partner before it moves ahead. A number of other operators have recently made some impressive discoveries close to the C-19 licence improving its prospectivity.
Elsewhere, Chariots prospects in both Brazil and Namibia are moving ahead, and the company is seeking farm-out partners for the prospects.
Unlike many other small oil companies, Chariot is funded for the foreseeable future, giving it flexibility to seek out the perfect project partners. The company is debt-free and ended 2014 with acash balance of $53,5m, after lastyears placingthat raised $15m.
Moreover, Chariot has moved quickly tocut costs during the past few months in order to preserve cash while the price of oil remains depressed. As part of this plan, the companycut directors pay by 50%and CFO Mark Reid left the company. These two measureswill save $1.5m in cash during 2015.
Its clear that Chariot is an asset-rich company, which is attracting the attention of some major players in the oil industry. However, whether the company can capitalise on these opportunities or not is another matter.
Indeed, since coming to market during 2008, Chariots shares have lost 92% of their value as the company has struggled to move ahead. A number of exploration failures have hit the companys share price hard over this period.
And with a cash balance of only $53m at the end of 2014, Chariots cash balance is the lowest it has been since 2011. Still, the company has enough cash to keep the lights on for the foreseeable future and additional farm-outslook to be just round the corner.
High risk, high reward
All in all, Chariot is a high-risk/high-reward play.
If the company manages to find partners to help it develop key prospects, Chariots shares could rocket higher. Although if management fails to negotiate any deals, theres a chance the company could go out of business.
So, Chariot’s certainlynot a company that’s suitable for widows and orphans.
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