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(Alliance News) - United Oil & Gas PLC shares plummeted on Monday after the operator of an Egyptian concession demanded the payment of nearly USD4 million in outstanding cash calls.
Shares in the oil and gas company, focused on Egypt, the UK and Jamaica, were down 39% at 0.32 pence each in London on Monday morning.
United announced the receipt of a default notice from Kuwait Energy Egypt Limited for a total of USD3.8 million in outstanding cash calls related to the Abu Sennan concession in Egypt's western desert.
United holds a 22% non-operating interest in the Abu Sennan licence, which is operated by Kuwait Energy. United has 30 days from the beginning of the default period on January 28 in which to "remedy the default". Should it fail to do so, the parties involved in the Abu Sennan operating agreement may force United to withdraw from the concession.
The company said that it had been in "advanced discussions" with United Energy Egypt Ltd, a sister company of Kuwait Energy, for the sale of its Abu Sennan stake. However, these discussions have now ceased, as United said it was "unable to agree to execute the draft sale and purchase agreement" presented by United Energy Egypt based on external legal advice.
The sale, which included a consideration of USD2.1 million, and was expected to take place in November, would have allowed United to settle its outstanding cash calls as of that date. The now increased figure in the default notice is due to cash called owed during the interim period since November.
United said that the decision to divest from Egypt was due to its "challenging macro-economic conditions", as well as the "persistent difficulty" United experienced in attempting to repatriate funds from the country.
Prior to September, United received payments from the Egyptian National Oil Co, another Abu Sennan stakeholder, in dollars and Egyptian pounds. Since that time, 87% of payments have been received in Egyptian pounds, resulting in "considerable foreign exchange losses" for the company.
Since November, United has sought a dollar remittance from EGPC against its outstanding receivables balance of USD800,000, after Kuwait Energy requested a material dollar payment to support the operational needs of the joint venture.
United also said it believes that the main value has been extracted from Abu Sennan, and wishes to refocus on its other assets.
The company is in discussions with both its legal advisers and debt provider following the default notice, and will provide an update "in due course".
Chief Executive Officer Brain Larkin said: "We are very disappointed that we could not reach agreement with United Energy Egypt to sell the Abu Sennan concession. We had worked tirelessly from early December and over the holiday period to finalise the sale and purchase agreement and engaged external lawyers to assist through the whole process at a significant cost.
"We had agreed the commercial terms, however, based on external legal advice, we were unable to sign the SPA in the form that United Energy Egypt presented to us. However, we believe the differences could have been easily resolved, and this commercial issue avoided."
In a separate announcement, United noted a two-year extension to the initial exploration period at its Walton Morant project in the Caribbean Sea, in which it holds a 100% interest. Following the approval of a Jamaican government ministry, the licence will now run until January 2026. The company said it is pursuing a programme of technical studies, including "piston core surveying and seismic reprocessing" at the 22,400 square kilometre asset.
By Hugh Cameron, Alliance News reporter
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