20th Jan 2016 10:04
LONDON (Alliance News) - Independent Resources PLC and Nostra Terra Oil and Gas Co PLC both saw their shares fall on Wednesday morning after providing its first update on the joint venture on the East Ghazalat field in Egypt.
Independent Resources shares were down 27% to 0.347 pence per share on Wednesday whilst Nostra Terra shares were down 2.5% to 0.0780p.
Although the pair released news that shows both companies are generating revenue from the recently acquired field, they are still awaiting to receive payments which is placing strain on Independent Resources' cash, causing the company's share price to fall further than its partner Nostra Terra as it warned it may have to get support from providers of equity finance.
Nostra Terra's release was more positive, as the company said it plans to acquire more producing assets in the near term as it tries to take advantage of the difficult climate caused by the fall in oil prices since the middle of 2014.
Nostra Terra and Independent Resources formed a joint venture in 2015 and acquired a 50% stake in the East Ghazalat field for around USD3.5 million back in October. The consideration was covered by USD1.0 million in cash and an existing third-party loan facility arranged by Nostra Terra, and the issue of a USD2.5 million loan note by TransGlobe, which sold the 50% stake to the pair.
Nostra Terra and Independent Resources hold half of the joint venture company each, meaning Independent and Nostra hold the equivalent of a 25% stake each in the field.
On Wednesday, Independent and Nostra Terra released separate, but identical statements providing an update on production from the fields.
Net production to each company, representing 25% of total production from the field, came in at 15,400 barrels of oil in the fourth quarter - suggesting total field production stood at 61,600 barrels of oil.
Production increased each month during the quarter following disruption early in the quarter, with net production in October totalling 4,629 barrel before rising to 5,171 barrels in November and 5,600 barrels in December. Output in October and November was adversely affected by an interruption in production at one of the field's producing wells, the pair said.
That means both Independent and Nostra Terra received attributable revenue in the fourth quarter from the field of USD242,499 each, with average prices standing at USD40.59 per barrel. That revenue builds on the USD358,457 in revenue generated for each company in the third quarter of 2015 from the field, when net production totalled 18,985 barrels.
Brent was trading lower than USD28 a barrel on Wednesday morning - hitting its lowest level since November 2003 on Monday.
Independent Resources and Nostra Terra said discussions are in progress with East Ghazalat's operator North Petroleum, to improve the asset's financial and operating performance. The pair are also finalising arrangements to invoice and receive revenue payments directly from the Egyptian General Petroleum Co to improve cash flow.
The operator and joint venture are hoping to lower operating costs, increasing production, drilling low-risk wells, improving cashflow and developing the North Dabaa gas discovery at the project.
Independent Resources said it has not yet received cash receipts from its interest in East Ghazalat and continues to incur cash outflows to meet working capital and corporate overheads. The company only has GBP109,000 in cash and is hoping to start reciving funds from the Egyptian field to improve cashflow moving forward.
"The company remains extremely cost conscious and seeks to keep operating costs at a minimum whilst tightly managing its cash resources and the directors continue to receive minimal to none of their remuneration as cash," said Independent.
"The company is continuing to pursue various potential sources of debt and alternative forms of asset backed financing to assist with the future development of East Ghazalat and other potential investment opportunities but should these be unsuccessful and should East Ghazalat experience delays in its cashflow generation to [the joint venture company] then the company will require support from providers of equity finance in order to be able to continue as a going concern," it added.
The story at Nostra Terra is more positive, with the company stating it is the "ideal time" to acquire producing assets as it continues to assess a number of attractive opportunities, it said.
"Our focus is on the acquisition of producing assets with further, low risk upside potential. Many of the companies struggling today either have assets with higher operating costs, have applied leverage at much higher oil prices, or sometimes both cases," said Nostra Chief Executive Matt Lofgran.
"With low oil prices we see this as an opportune time to acquire assets using debt. This strategy allows us to grow our production and reserves now, which should have a significant positive impact on cash flow when oil prices strengthen," he added.
Importantly, Nostra Terra has production from other assets in the US, but said it did not include them in the release Wednesday because it could not finalise the production results in time due to the number of operators it deals with in the country.
By Joshua Warner; [email protected]; @JoshAlliance
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