LONDON (Alliance News) - Kea Petroleum PLC shares dropped on 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 after the company identified the prospect as its prime focus, warning that its future remains "precarious" due to its cash constraints.
Kea shares fell by 21% to 0.668 pence per share on Tuesday morning.
In February, Kea launched a strategic review as the oil and gas exploration company focused on New Zealand 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.
However, Kea said it will need to raise around GBP3.0 million 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 it has also entered talks about raising funds so it can 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.
Consequently, Kea will now be seeking shareholder approval at a general meeting on May 8, for the company to issue shares to raise equity funds to drill the Shannon prospect.
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.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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