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Today's Oil and Gas Update: Chariot Oil and Gas, Green Dragon Gas Ltd., Volga Gas

Published: 18:16 05 Jun 2017 AEST

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Headlines

• In Brief:

o Volga Gas*** (LON:VGAS – 61p) – BUY – ($126 – 155m; 126 – 159p) – Feed Rate Remains Above Trend

o Chariot Oil & Gas (LON:CHAR – 15p) – Amuse Bouche

o Green Dragon Gas (LON:GDG – 78p) – Bonds Come in to Focus

In Brief

• Volga Gas*** (LON:VGAS – 61p) – BUY – ($126 – 155m; 126 – 159p) – Feed Rate Remains Above Trend: Today's production update underlines the additional processing capability that the Company has been achieving (average ~32mm cfpd), despite this month's below average charge to the gas plant due to testing of a new sweetening processing configuration. While the average is above of expectations for the year (~25mm cfpd), we are reiterating our current estimates until we get the interim statements, which will provide us with greater clarity of how pricing for the start of 2017 has held above our estimates. Our valuation remains $126 – 155m (126 – 159p).

• Chariot Oil & Gas (LON:CHAR – 15p) – Amuse Bouche: Since its inception, Chariot has been an active participant in the Namibian sector. Approximately 18 months ago, we highlighted a period of inactivity at the drill bit, which could lead the Company's share price to drift. While the Namibian drilling activity has indeed been a notable absence for the Company's programme, the activity of the Company elsewhere has not only filled the gap in between, but in the process of de-emphasising Namibia, has made it a stronger more balanced company. Consequently, what once would have been an announcement that would have generated significant response, that it is an interesting aspect to the Company underlines how successful management has been. We believe that today's news marks the restart of the Namibian campaign, and that it makes the next drilling round more interesting, but as far as the wider co mpany is concerned, Namibia is an amuse bouche.

• Green Dragon Gas (LON:GDG – 78p) – Bonds Come in to Focus: Today we are informed that the Bond Trustees have waivered their financial covenant tests for the Company, but we aren't told whether this is a permanent waiver, which is implied but unlikely, or a temporary waiver of a breach at this covenant test date. We believe that this is important to know, especially as if it is the former, the future structure of the Company is now on the creditors' radar, which will mean that it will be the equity holders that come under pressure. We continue to believe that what is needed is a clear articulation of how the Company will move forward from its current situation, what impact the various options will have, and the risks to each outcome. The management team need to start to articulate these things much more clearly to the market than they currently are.

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