24th Feb 2016 09:34
LONDON (Alliance News) - LGO Energy PLC shares rose on Wednesday morning after striking a deal to potentially secure USD20.0 million worth of investment as the company continues to search for a potential buyer.
LGO shares were trading up 49% to 0.320 pence per share on Wednesday morning.
The oil producing company operating in Trinidad and Spain launched a strategic review and put itself up for sale by entering an offer period late last year after problems at one of its wells in Trinidad caused financial difficulty for the company.
On Wednesday, LGO said it has progressed discussions with its advisors since then and has now signed a non-binding term-sheet with an unnamed institution to secure a USD20.0 million investment into the company.
LGO did not provide any further details concerning the potential deal, but stressed it is not currently legally binding - meaning there is no guarantee the investment will be secured - but said talks are continuing to reach a "possible binding agreement".
In addition, the company is also continuing to engage with other potential investors, and LGO said it will "consider entering a binding exclusive funding arrangement" with one of those investors, but again stressed there was no guarantee this would happen.
Separately, the company is continuing its formal sales process and therefore remains in an offer period.
"Despite the significant and prolonged downturn in the sector generally, the interest in investing in LGO reflects the quality of the underlying portfolio and the low cost production potential of the company's assets especially in Trinidad," said Chief Executive Neil Ritson.
In the second half of 2015, LGO suffered problems at one of its wells on the Goudron field in Trinidad, which has led the company to its current position. As well as losing one of its producing wells, the company also lost downhole equipment within the well, causing "significant cost implications" for the company.
LGO was then struggling to settle outstanding fees and costs owed to the third party which was carrying out the drill programme, forcing it to go to its bank, BNP Paribas, in search of funds to pay off its creditors.
LGO's subsidiary in Trinidad asked the bank for approval to release around USD4.0 million worth of funds that had already been drawn-down so it could pay its creditors - but the bank is still retaining that sum because LGO owes the bank a considerable sum. The debt owed to the bank by LGO is still in default and on demand
LGO owes a total of USD10.4 million to the bank, which has still not agreed to release the USD4.0 million requested, but has given LGO repayment waivers whilst it tries to complete its strategic review.
On Wednesday, LGO said discussions with the bank about extending repayment delays are ongoing.
LGO currently owes a total of USD6.5 million to local contractors in Trinidad. LGO has already struck a previously announced deal to settle USD1.5 million of that sum by issuing shares in the company, but those shares have not been issued yet.
Operationally - oil production continues from all three of its existing fields. Oil continues to flow from the flagship Goudron field and the Icacos field in Trinidad alongside the Ayoluengo field in Spain.
LGO said it managed to pump out an average of 658 barrels of oil per day from its three fields in the fourth quarter of 2015 - mainly from the Goudron field. Compared to a year earlier, group production is significantly down as LGO was producing 1,685 barrels of oil per day during the month of December 2014.
The main cause for the fall is the company;s decision to restrict operations at the Goudron field, the primary contributor to overall production, whilst it carries out essential maintenance work. LGO said restrictions were also put in place to optimise production and conserve cash in light of the current environment.
The Goudron field produced an average of 489 barrels of oil per day in the fourth quarter of 2015, but LGO said this has fallen further in January.
LGO said the decline in production from Goudron between December and January suggests the field is showing "some decline", which is becoming evident as LGO is not currently investing capital into the field unless it is necessary.
"All discretional infrastructure and drilling projects are on hold, however, routine workover activities continue to be performed with one rig utilized in the field as necessary. In January 2016 the average production rate in Goudron was 438 barrels of oil per day with the field showing some decline in the absence of ongoing capital investment," said LGO.
LGO is hoping the limited work being carried out on the field will lead its existing wells producing a combined extra 200 barrels of oil per day - but LGO needs to secure funding before it can carry this work out, it said.
LGO was planning on drilling 20 new wells on the Goudron field at a cost of around USD9.0 million, but that plan remains on hold for the foreseeable future. That programme was aiming to increase production from the field by 1,000 barrels a day.
Alongside restricted production, LGO's margin at Goudron is also under pressure. LGO said it is in talks with the country's state-owned oil company about adjusting the overriding royalty rates paid on the oil produced from the field to "better reflect the economics at the current oil price".
"At present prices and existing overriding royalty rates for Goudron production continues to make a positive cash contribution to the group with marginal barrels estimated to generate an average net cash after tax and royalties of between USD8 and USD10 per barrel," said the company.
At the Ayoluengo field in Spain, production averaged 154 barrels per day in the fourth quarter and has risen to around 162 barrels a day in January.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
Related Shares:
LGO.L