30th Oct 2015 09:26
LONDON (Alliance News) - Jupiter Energy Ltd Friday said it may restart production in Kazkahstan in the second quarter of 2016 depending on the oil price, meaning its operations will be shut for at least a year before operations restart.
The lack of production is hampering the company's cashflow and forcing it to rely on debt funding as it has not got permission to raise new equity funding.
Jupiter shutdown its production operations at the Akkar East block in Kazkahstan back in February after the fall in global oil prices pushed the already-lower domestic prices in the country, making its operation economical.
That has remained the case throughout 2015, and on Friday the company said it "believes" production could restart in the second quarter of 2016, but warned it could not give any guarantee as its decision will be based on the oil price at the time.
That means the field is likely to be shut for a minimum of over a year and potentially longer if no recovery in the oil price occurs. Back in the middle of 2014, Brent was trading at around USD115 per barrel but has faltered since the second half of 2014 to a price of only USD49 per barrel on Friday morning.
As a result of its production being suspended, the company has benefited and lost out from the decision. Jupiter has managed to slash its monthly operating costs by around 40% to secure USD2.0 million worth of annual savings since shutting in production as it hunkers down and waits for an improvement, but it also means it has no incoming revenue which is straining its cash balance.
Jupiter has had to go back to its "substantial shareholder" Waterford Petroleum Ltd to draw down a further USD500,000 under its existing agreement with the lender in order to keep the lights on. That original deal with Waterford was signed back in April whereby Waterford is supplying up to USD10.0 million in total via the issuance of promissory notes.
"Based on management forecasts, the company has sufficient working capital, including its access to the remaining funding under the framework agreement, for the 2015 calendar year. The company continues to seek a longer term funding package that will enable the commencement of the 2015/16 drilling programme," it said in a statement.
"Subject to obtaining the requisite funding, the company plans to continue with its drilling programme as soon as it is possible. It is unlikely that there will be any drilling carried out in 2015 and at this stage two wells are planned for 2016," it added.
Those two wells will comprise of one on the Akkar East block and the other on the north-east area of the permit.
The company said the continued use of unsecured debt to fund the company is the result of local authorities not providing permission, or a waiver, for the company to raise equity through the issuance of new shares.
"The board has been advised by convertible note and promissory note holder Waterford Petroleum and the other convertible note holders that funding via equity is their preferred structure and they continue to urge the company to pursue the granting of a waiver as soon as possible," it said.
Jupiter said it will submit its request for a waiver in the fourth quarter.
At the J-50 well on the Akkar North field, one of the producing wells shut in earlier in 2015, the company is waiting to secure an extension to the trial mining licence. Although the well is shut-in, Jupiter is trying to secure the licence extension to ensure operations can restart as soon as it is viable.
The currently delay in the extension being awarded is being caused by a dispute over the division of reserves in the Akkar North accumulation between Jupiter at a company which owns a neighbouring project, MangistauMunaiGas.
"Jupiter Energy has been in dialogue with MangistauMunaiGas on this issue for some time but has been unable to reach formal agreement with MangistauMunaiGas with respect to the division of Akkar North reserves," it said.
"The company continues to try and bring the matter to a satisfactory conclusion and will keep shareholders updated on this situation," it added.
Away from its main operations, Jupiter continues to try to secure the necessary trial production licences for the two wells drilled on the West Zhetybai licence. The company said it needs to get the surface infrastructure in place for both wells but said it can not afford the equipment required to do this.
Jupiter Energy shares were down 5.1% to 8.30 pence per share on Friday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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