Oil exploration play Chariot Oil & Gas (CHAR:AIM) is in demand – moving ahead 5.4% to 19.9p – as it secures a farm-out deal with Australian major Woodside Petroleum (WPL:ASX) for its Rabat Deep block offshore Morocco.
The agreement will see Woodside pay back costs associated with the project, fund a 3D seismic survey and further data acquisition in return for a 25% interest (leaving Chariot at 50%). The Aussie operator also has the option of securing a further 25% stake in return for funding the costs of an exploration well to an agreed cap. Today's announcement also reveals an independent audit of the asset has identified a prospective resource of 618 million barrels of oil.
The current extensive drilling offshore Morocco – which kicked off with Cairn Energy's (CNE) well on the FD-1 prospect last October (28 Oct) – is yet to yield a commercial discovery. Chariot's peer Tangiers Petroleum (TPET:AIM) commenced drilling on the latest well – TAO-1 – late last month (26 Jun) and is targeting up to 758 million barrels.
House broker finnCap reiterates its 46p price target and comments: 'On the assumption that Woodside exercises its option to acquire a further 25% interest and to fund a well, Chariot would have a 25% stake with no risked capital on drilling. This is about as low risk as a junior exploration can hope for and should be viewed positively by the market.'
Westhouse Securities remains unconvinced and retains its sell take and 17p price target. It says: 'This is a modestly positive development, but the farm-in stops short of a well commitment which is ultimately what Chariot needs to trigger any kind of rerating in our view. We retain our Sell rating and 17p target price and, while the shares may bounce this morning, we are skeptical (sic) that any significant rally in the shares will be sustained.'