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Oil price

As expected with no bad news from the Middle East and indifferent inventory stats the market lost its glean and fell sharply yesterday, no surprise and with the Fed talking down interest rate cuts the greenback rallied to add insult to injury.

Challenger Energy Group

Challenger has announced that it has entered into a legally binding term sheet for an investment by Charlestown Energy Partners LLC.

Highlights:

• Charlestown will invest £1.5m in the Company, initially in the form of a loan, which upon closing of the AREA OFF-1 farm-out to Chevron and subject to prior completion of an agreed share consolidation shall convert at a fixed price of 0.168 pence per share, being a c. 20% premium to the current share price. This will result in Charlestown holding a c. 8.7% shareholding in Challenger Energy, thus making Charlestown one of the Company’s largest shareholders
• Charlestown is a New York-based specialist energy investor with a successful track record of making early cornerstone investments in listed exploration companies, most recently as the lead investor in a listed Namibian-focused conjugate margin player
• Charlestown Managing Member Mr. Robert Bose to join the Board of the Company
• Charlestown’s investment ensures the Company’s ability to commence technical work on AREA OFF-3 at the earliest opportunity by underpinning the licence requirement to place cash on restricted deposit, ahead of the anticipated completion of the AREA OFF-1 farm-out to Chevron at which time the Company will receive $12.5 million in cash proceeds. Thereafter, Challenger Energy is expected to be fully funded for the foreseeable future, with no need for additional capital, whether equity or debt

Eytan Uliel, Chief Executive Officer of Challenger Energy, said: 
“The strong progress of our business in Uruguay has seen a noted increase in interest from investors familiar with the E&P space who appreciate the value potential of our assets. We are pleased to advise of today’s agreement with Charlestown, a specialist energy investor with an enviable track record of successful cornerstone investments in various listed and unlisted E&P companies, including being an early investor in the success story that the Namibian conjugate margin now represents. Charlestown’s investment in Challenger Energy will initially be as a loan, but once the Chevron AREA OFF-1 farm-in closes and we have completed a necessary share consolidation that loan will convert at a premium into an approximately 8.7% shareholding, and Charlestown will become a major shareholder in our Company. Charlestown’s investment, coupled with our low overhead and the attractive carry arrangements in the Chevron farm-out, puts us in an excellent financial position, with no need for further capital for the foreseeable future. As part of their strategic investment, Charlestown’s Managing Member Mr. Robert Bose will be joining our board, and together we will be working to ensure that Challenger Energy provides Charlestown, alongside all shareholders, with the same outstanding return that their investment in the Namibian conjugate margin has”.

Robert Bose, Charlestown Managing Member, said:
“I am very pleased to be joining the Challenger Energy board. Charlestown Energy Partners has been an active investor in global exploration opportunities, including in Namibia where we have developed significant insights into the conjugate margin’s opportunity through our exposure to multiple blocks in the Orange and Walvis offshore basins, including PEL83 which is home to the recent multi-billion-barrel light oil discoveries by Galp Energia. We believe over time these results should translate across to the Uruguay conjugate margin. Challenger Energy’s unique position in Uruguay, capital strength and upcoming catalysts position the Company for significant growth and value creation over the coming years. We are extremely excited to be part of the Challenger Energy story.”

Believe me this is a sensational piece of news, fantastic for CEG shareholders and if you aren’t one already you should be. Charlestown is all over the energy space, supporting exploration and already have history in a number of successful investments. The ones I know about best are at Eco Atlantic and of course Sintana where they have been on board through the Mopane well that I have been writing about recently. 

And don’t forget that Charlestown approached CEG, they saw a similarity in their Namibian investments, including farm-downs to Chevron and ‘got’ that Uruguay might just be the next Namibia and decided to invest. There are some transactional issues such as CEG needing a share consolidation to satisfy Pershing and obviously the Chevron deal has to close before the investment can complete. But they are paying a 20% premium for the privilege and there aren’t many times that happens…

Admittedly Robert Bose gets a board seat for only one and a half million quid, as someone said to me this morning thats cheap but I happen to think that this deal, the more I look at it may be something that changes life as we know it in the sector. 

The companies that CEP are investing in are of a kind, they look like a portfolio of high end assets and in the most desirable post codes in the business. They have a recurring theme of doing the early years work which oil and gas entrepreneurs are the best at and to raise seed money, but the key thing is knowing when to let go, or to let someone else participate in order to share the upside by doing the heavy lifting. 

So, CEG have a new long term partner, CEP are not going to hassle them for short term share price activity and I expect them to be long term supporters of Eytan and the team. They can and will get on and close the AREA-1 deal with Chevron and can start spending on things to make AREA-3 ready to farm-out. Given that it was the AREA-1 data that led them to CEG then I can see that process going well. 

CEG shares are up very modestly on this deal, done at a 20% premium as I said but if ever there was a ten-bagger staring you in the face then this is it, ignore taking shares at 0.14p at your peril, it could well be a eureka moment right in front of your very eyes…

About Charlestown:

Charlestown is a specialist energy investor that is associated with Charlestown Capital Advisors, a family office founded in New York in 2005.  

Charlestown has been making investments globally in E&P since 2016 and has been the cornerstone shareholder in Sintana Energy Inc, a TSX-listed exploration company since 2019. Sintana maintains an indirect interest in a portfolio of exploration licenses in Namibia including in the emerging Orange Basin, where several multi-billion-barrel discoveries have been made by Shell, TotalEnergies and Galp Energia.  As a result of its early entry and the subsequent exploration success, Sintana’s share price has appreciated more than six-fold in the past two years.  

Principal Terms:

• The principal terms of the agreement entered into between Charlestown and Challenger Energy are:
• On closing, Charlestown will advance a loan of £1.5m to the Company.
• The Loan will have a maximum term of 12 months.
• The Loan will accrue interest at the rate of 1% per month, with all principal and interest to be repaid in full at conclusion of the term, unless repaid earlier.
• The Loan will be unsecured.

Funds from the Loan are to be applied by the Company for:

• the requirement to place US$500,000 on restricted deposit in support of commencement of work on the newly awarded AREA OFF-3 block, and
• general working capital purposes, including, in particular, meeting the Company’s funding needs through to completion of the previously announced farm-in by Chevron to the AREA OFF-1 block in Uruguay (the “Chevron Farm-in”).

At any time during its term, either Charlestown or the Company can elect for early repayment of the Loan (plus interest), to be made by way of conversion of the Loan into newly issued ordinary shares in the Company, but only if the following conditions have first been satisfied:

• the Chevron Farm-in has completed (this is anticipated once Uruguayan regulatory approvals are finalised, which is expected will be in the next 2-3 months; on completion of the Chevron Farm-in, as previously advised, the Company will receive US$12.5 million in gross cash proceeds); and
• the Company’s shareholders have approved, and the Company has thereafter undertaken, a share consolidation on the basis of at least 50:1 (this being a necessary requirement to enable Charlestown’s share custodian to hold shares in the Company).

Assuming the above-noted conditions are satisfied and the Loan (plus interest) is repaid early in the form of newly issued ordinary shares, those will be issued to Charlestown at a price, on a pre-consolidation basis, of 0.168 pence per share, representing a premium of approximately 20% to the current share price, and ordinary shares would be issued to Charlestown representing an equity interest of approximately 8.7% in the Company. This would have the effect of making Charlestown a major shareholder and cornerstone financial investor in the Company.

The Company will issue warrants to Charlestown in respect of provision of the Loan, valid for 24 months from the date of their issue (which will be on or around financial close of the Charlestown investment), which will entitle Charlestown to subscribe for an additional 105 million ordinary shares in the Company at a subscription price of 0.2 pence per share (pre consolidation). This represents a premium of approximately 45% to the current share price. These warrants, if all exercised, would result in the Company receiving total additional proceeds of approximately £215,000, and would result in Charlestown’s shareholding in the Company increasing to approximately 9.5%.

The agreement entered into between Charlestown and the Company is in the form of a legally binding Term Sheet. Completion of the transaction with Charlestown will require the parties to enter into full-form legal documentation by 30 April 2024, with financial close to follow by 15 May 2024 (and with a long-stop date of 31 May 2024).

Following financial close, and so as to facilitate the desired cornerstone investment from Charlestown, the Company will proceed to convene a shareholder meeting for the purposes of proposing a share consolidation. It is expected that documentation will be despatched to shareholders in early June 2024, and with the shareholder meeting to follow approximately four weeks thereafter.

Intended Board Appointment

Commensurate with the intended long-term cornerstone shareholding in the Company by Charlestown, Mr. Robert Bose will be invited to join the Board.

Mr. Bose has been the Managing Member of Charlestown since 2016, having joined Charlestown Capital Advisors as a principal in 2014. Prior, he spent 17 years in the Global Investment Banking Group at the Bank of Nova Scotia, most recently as Managing Director and Head of the Power & Utilities Group, with a specifical focus on the energy and power sectors. Mr. Bose is currently also serving as Chief Executive Officer of Sintana, which as noted represents a significant holding in Charlestown’s current portfolio.  Mr. Bose has an Honors Degree in Economics from Queen’s University in Kingston, Ontario and is a CFA Charterholder.

Subject to completion of usual onboarding processes, Mr. Bose’s appointment will take effect at such time as funding is advanced by Charleston, anticipated in mid-May 2024. Additional details pertaining to his appointment will be provided at that time.

Petrofac

Petrofac has today been awarded a Technical Services Contract by Compañía Nacional de Petróleos de Guinea Ecuatorial (GEPetrol), the National Oil Company of Equatorial Guinea, to support the operation of the region’s Block B asset.

Under the contract, valued at around US$350 million over five years, Petrofac will deliver technical services across onshore support bases, an FPSO and a platform on behalf of GEPetrol, the Operator. The contract draws on Asset Solutions’ core services, including operations, maintenance, asset integrity, integrity management, marine services, well engineering, project delivery and supply chain services.

This follows Petrofac’s initial scope supporting the transition of the asset from Mobil Equatorial Guinea Inc (MEGI). Valuing local capability, staff and contractors that were previously in place will continue in various roles, retaining valuable expertise and knowledge of the assets. Petrofac will manage the contract from Malabo, supplementing support from its technical hub in Aberdeen, UK, sharing its extensive Duty Holder expertise.

Nick Shorten, Chief Operating Officer of Petrofac’s Asset Solutions business commented:
“We look forward to developing our relationship with GEPetrol further, collaborating to extend the life of the field to build a legacy of energy independence and sustainable growth for Equatorial Guinea.

“This award is an excellent example of our strategy in action: selectively growing our geographic footprint and driving value for our clients through late life asset optimisation.

“Africa is a key focus for our Asset Solutions business and we are pleased to build on our operations in Ivory Coast, Ghana and Senegal and Mauritania with this opportunity in Equatorial Guinea.”

Antonio Oburu Ondo, Equatorial Guinea’s Minister of Mines and Hydrocarbons added: “Our vision is to create a fully capable nationally-operated oil and gas company to manage our assets. Today, I am proud that our vision is becoming a reality.

“We will grow our economy through diverse partnerships and investment in our people. Combining our strong indigenous capabilities, with Petrofac’s global expertise and experience, we will deliver significant value for our country.”

Teresa Isabel Nnang Avomo, Director General of GEPetrol commented:
“Today’s contract signing marks a key milestone in our journey to becoming Operator of Block B on 1 June 2024.

“We are excited to grow our partnership with Petrofac. By unlocking the huge potential of our indigenous national workforce, we will build with Petrofac’s assistance, an organisation for the long-term management and development of our country’s oil and gas assets.”

This is a good contract for Petrofac and adds neatly to the portfolio but it isn’t going to make huge addition to the order book nor the problems the company has elsewhere in the business. I am well documented as being positive on Petrofac for the long haul but they need much more than this to move the dial, or the share price for that matter…

i3 Energy

i3 Energy yesterday announced that its subsidiary, i3 Energy Canada Ltd., has entered into a definitive agreement with a newly formed private royalty company for the sale of certain of the Company’s royalty assets for a total gross cash consideration of USD 24.81 million (CAD 33.50 million) before customary closing adjustments. The proceeds of the Royalty Disposition mark the next step in transitioning i3’s capital structure, enhancing the Company’s financial flexibility through improved liquidity and enabling acceleration of its growth and income-based business plan.

Highlights:

• Accelerating and Unlocking Value: Realization of USD 24.81 million in gross proceeds from the sale of an estimated 388 barrels of oil equivalent per day (“boe/d”), translates to 6.9 times 2024 forecasted cash flow and approximately USD 63,960 per flowing boe/d, which represents a significant premium to the Company’s current market valuations.
• Pro Forma Financial Position Upon Closing: The proceeds of the Royalty Disposition will fully eliminate i3’s outstanding bank indebtedness and establish a working capital surplus(4) without materially impacting its working interest production base; which, together with forecasted cash flows and undrawn credit facility, provides the Company with significant liquidity to execute its growth and income strategies.
• Retained Key Royalty Position at Greater Simonette: As part of i3’s high-impact Montney oil asset at Simonette, the Company has retained its 16,160 acre royalty position, along with approximately 35 boe/d of associated production (collectively the “Simonette Royalty”), throughout this core area.

Ryan Heath, President of i3 Energy Canada Ltd., commented:
“i3 Energy Canada Ltd. is extremely pleased to have closed this complex accretive transaction with a newly minted private Canadian royalty company. Proceeds from the Royalty Disposition advantageously position the Company to fully eliminate its bank debt and create a working capital surplus; all while preserving a substantial, low decline, production base exceeding 19,000 boe/d (~48% liquids). The increased liquidity on the Company’s balance sheet combined with its stable cash flows, will support both its organic and inorganic initiatives, as we actively look towards a dynamic 2024.”

A smart move only to be expected by Mr Heath and team, virtually no downside and plenty of upside, congratulations!

KeyFacts Energy Industry Directory: Malcy's Blog