LONDON (Alliance News) - Independent Oil and Gas PLC shares plummeted on Wednesday after the company made a decision to delay its plans for the Skipper appraisal well in the UK North Sea, meaning it will have to secur an extension to the licence and an agreement with its lenders.
Independent Oil shares were down 52% to 4.18 pence per share on Wednesday morning.
"Whilst it has been a very difficult decision, it has undoubtedly become prudent to postpone the Skipper appraisal well given the significant further oil market weakness in recent weeks, as well as unsettled weather conditions in the North Sea," said Chief Executive Mark Routh.
As a result, Independent Oil has been forced to return to London Oil and Gas PLC for an additional GBP10.0 million worth of convertible debt funding, which already supplied two other tranches of funding worth GBP2.8 million and GBP800,000 each back in December.
The news pushes back the Skipper plans even further. The appraisal well to be drilled on the licence was originally expected to be completed before the end of 2015, which was then pushed back to be drilled before the licence is due to expire at the end of March 2016.
However, on Wednesday, the company said it now anticipates drilling the well "later this year", and said it will have to secure an extension to the Skipper licence from authorities.
"The Company now anticipates the Skipper appraisal well to be drilled later this year. To achieve this revised timetable, Independent Oil and Gas will need agreement from its principal lenders and contractors and agreement from the Oil and Gas Authority to extend the Skipper licence beyond March 30, 2016. These critical discussions are ongoing," said the company.
Independent Oil cited the fall in oil prices and bad weather in the UK North Sea as reasons behind the deferral of its plans. Independent Oil is expected to repay a series of loans and contractor deferral funding before the end of 2016 under its existing schedule for Skipper, but said Wednesday the risk of refinancing those payments has increased due to the fall in oil prices.
Independent Oil will now have to negotiate a new agreement with its lenders in order to facilitate its new timetable for the asset.
As a result of the GBP10.0 million worth of funding being provided by London Oil and Gas, Independent Oil has invited the company to appoint two directors to its board.
That GBP10.0 million convertible debt facility will be secured against Independent Oil's assets and can be converted into shares at a conversion price of 10.0 pence per share. Around GBP3.0 million of the facility will be used to cover administrative and licence fee costs with the other GBP7.0 million to be used to "used to add value" to the company's portfolio.
It is proposed that the loan would need to be drawn in full within three years of completion. Each drawing would then need to be converted into ordinary shares in Independent Oil and Gas three years after drawing. If committed, the funding would not be able to be used for debt repayments.
"Upon completion, this GBP10.0 million funding deal with London Oil and Gas would be a major milestone for Independent Oil and Gas, ensuring that we would be in the best possible position not only to survive this severe industry downturn but also to capture some of the opportunities that it creates," said Routh.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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