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Shares of Kazakhstan-focussed oil and gas exploration and production company Max Petroleum plc (LSE:MXP) crashed with more than half their value lost in London trading, after the company said its delayed-stricken drilling operation may cost them a total of US$43 million to complete, draining the company’s cash position.
The NUR-1 well, spudded in November 2011 was originally expected to be completed in six months’ time, but it has not reached its target depth. Max Petroleum indicate that further delays from the stucked drill string in April moved the completion date beyond August 2012, costing a further US$10 million,. This comes with the pre-requisite, “assuming near-term success in freeing the stuck pipe and normal operations going forward.”
Back in October 2011, Max Petroleum anticipated about US$21 million in costs to drill NUR-1 well, the first of the two exploration well to be drilled in the pre-salt prospects. This equated to targeting an estimated 467 million barrels of oil equivalent (mmboe) of unrisked mean resource.
Additional Funds Needed
The now bloated expense in the two-well exploration programme at the Blocks A&E licence left Max Petroleum with only $3.8 million from its $58 million senior credit facility expiring on 30th June 2012,. This is not enough to fund the estimated $10 million it will incur to complete the drilling and fund other operations of the company.
“The Company is working with its senior lender, Macquarie Bank Limited, and has initiated discussions with a number of providers of debt and equity financing, regarding the provision of additional capital.”
However, Max Petroleum said current market conditions as well as “regulatory changes” in Kazakhstan impacted discussions and preventing completion of conventional equity offering, which the company hopes to re-negotiate with Macquarie Bank Limited during its semi-annual budget review in July 2012.
Max Petroleum only has until March 2013 to complete its exploration programme in Blocks A&E licence, obtained in 2005, covering exploration and production rights on over 12,000 square kilometres within an area that has produced some of the world’s largest oil and gas discoveries.
“In the absence of additional funding the Company may have to significantly curtail its intended exploration activities,” Max Petroleum stated.
Company Spotlight
Max Petroleum currently has five producing oil fields with combined proven reserves of over 7 billion barrels of oil, producing more than 3,500 barrels of oil per day, based on the latest update of its operations.
Trading on the Alternative Investment Market, Max Petroleum shares lost 52.6% to 4.1 pence a share, with more than 92 million shares switching owners at 2:00 PM GMT.
