LONDON (Alliance News) - Northcote Energy Ltd and Red Rock Resources PLC both saw their shares fall on Wednesday morning after both companies struck deals with Shoats Creek Development Inc.
Northcote shares were down 12% to 0.0398 pence per share on Wednesday morning whilst Red Rock shares were down 5.3% to 0.355p.
Northcote said it has "substantially improved" its balance sheet through two transactions with Shoats Creek Development Inc, its partner on the Shoats Creek field in Louisiana in the US. Northcote said its liabilities have fallen by USD535,800 following the transactions.
Under the first transaction struck by Northcote, the company has agreed to assign a 23% working interest and a 16.56% net revenue interest in the Lutcher Moore-20 well to Shoats Creek Developments.
In return, USD220,800 worth of debt owed by Northcote to its partner has been written off and Northcote will retain a over-riding royalty interest of 0.7912% in the Lutcher Moore-20 well. Northcote has also secured a back-in-after-payout of around 4.3125% working interest and a 3.105% net revenue interest.
In a farmout, the farmer usually reserves an overriding royalty interest, with the option to convert the overriding royalty interest to a working interest in the lease upon payout of drilling and production expenses, otherwise known as a back-in after payout.
Under the second transaction, Northcote has agreed to jointly form a trust with Shoats Creek Developments for the purposes of settling certain trade payables incurred in conjunction with activities at the Shoats Creek field in the fourth quarter of 2014.
Northcote will receive a credit against amounts owed by Northcote to Shoats Creek Developments of USD315,000 in conjunction with the second transaction. Following both transactions, Northcote's liabilities have fallen to around USD600,000.
"As part of the agreement Shoats Creek Developments has further agreed that Northcote shall have the option, at its sole discretion, to name itself operator of any well, lease or the entire Shoats Creek Field at any time," said Northcote.
"These related transactions result in a substantial improvement to our balance sheet and liquidity which positions us to continue developing and better manage the Shoats Creek Field in the challenging oil price environment in which we find ourselves," added Randall Connally, managing director of Northcote.
Red Rock has struck a deal to acquire a 20% working interest and a 14.4% net revenue interest in the Lutcher Moore-20 (LM-20) well on the Shoats Creek field, operated by Shoats Creek Developments with its partner Northcote. Red Rock is acquiring those interests from Shoats Creek Developments.
Red Rock previously entered into an agreement to participate in development activities at the Shoats Creek field, notably the planned LM-21 and LM-22 wells, and has now agreed to acquire an equal interest in the recently drilled LM-20 well.
Red Rock has paid a total of USD120,000 for those interests, and will make a further USD40,000 payment should the LM-20 well manage to produce more than 100,000 barrels of oil within three years of production starting.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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