Chariot Oil & Gas has announced that its subsidiary, Enigma Oil & Gas Exploration, has entered into a farm-out agreement with BP.
Under the terms of the agreement, BP has committed to cover Chariot’s cost of drilling the first exploration well at a prospect off the Namibian coast, as well as past costs incurred.
BP will acquire a 50% share of Chariot’s equity interest in ‘Southern Block 2714A’, which covers an area of 5,481km².
Chariot said it would now be able to continue its drilling campaign in the area while being able to share in the costs, risks and rewards of exploration.
Funds received and retained through the deal would be used in further exploration and appraisal work, it said.
However, it stressed that the agreement remained subject to the full approval of the Ministry of Mines and Energy in Namibia.
Chariot’s share price rose almost 10% by lunchtime on Monday following the news.
Paul Welch, chief executive of Chariot, said: “It has been a key strategic objective for us to farm down our assets in order to facilitate exploration drilling, retain capital and mitigate risk; we are very pleased to have made progress towards this”.
Andrew McGreary, analyst at Northland Capital Partners, said: the BP farm out would “release funds for further exploration and reduce Chariot’s risk exposure, whilst maintaining it with a material stake in the project”.
“The Southern well is likely to cost in the region of $60m, so the company has effectively offset $30m exposure and gained around $20m in back costs – a strong deal,” he said.
“Having spoken to management there is potentially further news to come on the Northern block where drilling is planned for this November (est. cost $65m), though this is dependent on rig options with two working and one new build under consideration.”
