22nd Jan 2016 09:35
LONDON (Alliance News) - Northern Petroleum PLC shares rose Friday after the company outlined its plans after completing the acquisition of a set of Canadian assets, which will see it produce 200 barrels of oil equivalent per day before doubling this in the near term.
Northern Petroleum launched plans back in late November to raise GBP1.2 million in a share subscription of 40 million new shares at 3 pence each, and a further GBP1.2 million from an open offer for up to the same amount of shares at the same price.
Northern Petroleum shares were trading up 19% to 3.24 pence per share on Friday morning.
The share issuance was fund Northern Petroleum's acquisition of assets in northwest Alberta, Canada, with the belief that the net cashflow from those assets, combined with its existing assets, will be enough to broadly cover its general and administrative cost through to 2016 at an oil price of USD47 per barrel. However, this is way above current prices, with Brent trading at just over USD30 a barrel Friday after recovering from its lowest price since November 2003 earlier this week.
In total, Northern Petroleum paid CAD250,000 for the assets, as well as assuming an abandonment liability for all of the wells and facilities acquired, from an undisclosed production company listed on the Toronto Stock Exchange.
On Friday, Northern Petroleum said it has paid a deposit to the Alberta Energy Regulator of around USD1.2 million, with the deposit representing the cost of the asset abandonment liability netted off against the value of the last 12 months of production, as deemed by the regulator.
Production at the Canadian assets was shut-in during 2015, which significantly devalued the assets, meaning a "larger temporary cash deposit " has been made than previously forecast.
"This deposit will be returned to the company by the AER once production, and therefore asset value, increases, which is expected to occur as a result of the winter work programme," said Northern Petroleum.
Northern Petroleum said it has formally completed the Canadian acquisition and outlined its plans for the new assets and its existing assets in Italy.
"The completion of the Rainbow assets acquisition has put the company on a much stronger financial footing. With a relatively low risk and low cost Canadian work programme, the company should be able to generate cashflow to help support the business through this year and beyond. Something that is extremely important during this difficult economic period for the industry," said Chief Executive Keith Bush.
"The company has a very good mix of opportunities which have differing levels of risk and reward for shareholders that will mature over different time scales. We are now in a good position to progress each opportunity and benefit from the success of any project," he added.
Northern Petroleum estimated its general and administration costs in 2016 will be less than USD3.0 million, which should be covered by the positive cashflow contribution from the new producing assets. Following the asset purchase, Northern Petroleum had a cash balance of USD2.4 million.
The assets in Canada are significant, as they are the company's first substantially producing assets. Northern Petroleum said group production following the deal stands at 200 barrels of oil equivalent per day, 80% of which is oil, which will be taken from the assets' proved plus probable reserves of 1.5 million barrels of oil equivalent, of which 900,000 barrels are proven.
Importantly, that 200 barrel a day figure includes the company's existing 100/16-19 well in the Virgo area, in the same part of western Canada.
"In the Virgo area, the 102/15-23 well has been shut in for nearly a year due to a pipeline integrity issue on a third-party-operated gathering system. After extensive discussions, the company has agreed to take ownership of the affected section of pipeline and carry out the necessary repair work during February 2016 to bring the well back into production," it said.
Northern Petroleum intends to dive straight in and has launched a first quarter winter work programme aimed at doubling current production to 400 barrels a day. Importantly, the company said no drilling capital will be required, and the total cost of the work programme has been halved compared to original estimates, forecast to cost around USD600,000.
Primarily, the work programme will focus on repairing and replacing pumps, rods and engines, combined with other facility and pipe maintenance, it said, suggesting it is trying to up production through improving the efficiency of the existing wells.
At its exploration and development projects in Italy, Northern Petroleum said it is preparing an environmental submission for an appraisal well on the Giove discovery, which is thought to contain around 26.0 million barrels of oil. It then plans to acquire 3D seismic in the second half of 2016, subject to financing, over its permits in the southern Adriatic, including the Cygnus prospect which is estimated to contain 446 million barrels of oil.
In addition, Northern Petroleum said the exploration programme on the Cascina Alberto permit, which is operated by Royal Dutch Shell PLC, has started. That permit hosts the Gattinara prospect, which has been previously interpreted as having around 300.0 million barrels of prospective resources by its former owners, it said.
Northern Petroleum also noted that recent regulatory changes by the Italian government, limiting drilling within coastal waters, won't affect its permits and applications in the southern Adriatic, as they are more than 12 nautical miles from the Italian coast.
By Joshua Warner; [email protected]; @JoshAlliance
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