21st Apr 2015 10:43
LONDON (Alliance News) - Kea Petroleum PLC shares dropped early Tuesday after it urged shareholders to approve the issue of shares to allow the company to raise funds to drill the Shannon prospect in New Zealand, but recovered sharply after Kea set a minimum price for the fundraising.
Kea has identified Shannon as its prime focus, warning that the future of the company remains "precarious" due to its cash constraints.
Kea shares were 5.9% to 0.900 pence per share late Tuesday morning, having fallen to an intraday low of 0.67p soon after the open of trade, after the company set a minimum price for the proposed equity fundraising of 1.0 pence per share.
The oil and gas exploration company focused on New Zealand proposed an equity fundraising for a minimum of GBP3.0 million by issuing a minimum of 300 million new shares at the minimum price of 1.0 pence per share. Kea will seek shareholder approval for the fundraising at a general meeting to be held on May 8.
Kea wants to raise the funds to develop its Shannon prospect, and the company said the equity fundraising will give shareholders "the potential for significant upside, albeit not without risk".
The new shares will be made available through primarybid.com, a company with similarities to crowdfunding websites. Purchasers setting a maximum price per share, with allocations made to bidders who have bid the highest price, said Kea.
"The board of directors is aware that investors may be able to purchase Kea shares in the secondary market below the minimum placing price of 1 pence. However only the issue of new ordinary shares through PrimaryBid.com will raise the capital needed by Kea. Trades in the secondary market will not raise any new capital for the company," Kea said in a statement.
In February, Kea launched a strategic review as it struggled amid the current oil price environment. Its Puka site was shut-in in January, and the company said it remained in farm-out talks on its Mauku and Shannon prospects, but struggled to complete a deal due to the current environment.
That was followed by the company relinquishing its Mercury permit in New Zealand after failing to secure a partner.
On Tuesday, the company said its "principal goal" is to enable the drilling of the Shannon prospect, which has an estimated 9.6 million barrel resource, and is ready to drill and located directly beneath the company's Puka production station. Kea holds a 70% stake in the Shannon prospect, with MEO New Zealand Ltd holding the remaining 30%.
"Due to the previously announced cash constraints facing the company, Kea's future is precarious, and it is frustrating that Kea has an exciting prospect ready to drill and located immediately under our Puka production station. The company is therefore investigating the possibility of raising funds for the preparation and drilling of a well to test the Shannon prospect," Kea said.
In addition, Kea said it is a "priority" to bring the Puka 1 and Puka 2 wells back into production. The wells were shut in after the fall in oil prices made them uneconomic, but Kea said drilling the nearby Shannon prospect may make a further Mount Messenger intersection, which would increase volumes from Puka1 and Puka 2 to a positive cash-flow in today's price environment, it said.
Kea Petroleum said if it can access the 9.6 million barrel estimated resource at the Shannon prospect, then it can generate USD673 million in gross income over a 15 year period based on an oil price of USD70 per barrel, with costs coming in at around USD30 per barrel, making the entire area more economically sound than it currently is.
Brent was trading at around USD63 per barrel on Tuesday morning.
"Production from another Mount Messenger well with similar characteristics to Puka-1 and Puka-2 would improve the economics of resuming production from these wells. However, there is no guarantee that an intersection of oil at the Mount Messenger level will sufficiently change the economics of the field to justify restarting production, especially at current prices," the company said.
Kea will need to raise at least GBP3.0 million from its proposed placing to drill the Shannon prospect and said it will continue to try to find a farm-in partner to assist in the drilling of Shannon-1 well, but said the equity fundraising will allow it to drill the well independently.
"The directors consider it important that the company is in a position to drill the Shannon-1 well and is investigating ways to raise the required funds. The directors consider it important that they have the ability to raise further capital to meet the company's ongoing working capital requirements, and to take advantage of any upturn in the equity markets, which continue to be challenging for junior oil and gas exploration companies," it said.
Kea said that if it fails to raise sufficient funds, it may be forced to sell assets at "fire sale" values or lose its exploration licenses because it could fail to meet its ongoing commitments.
"There is considerable risk for anybody deciding to bid or subscribe for new shares in the company. The company's financial position is precarious and its current working capital position is tight with sufficient funds for operations until shortly after the forthcoming general meeting. The company is unlikely to survive in its present form, if at all, if the necessary funds are not raised through PrimaryBid.com or through other means," said Kea.
By Joshua Warner; [email protected]; @JoshAlliance
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