LONDON (Alliance News) - Empyrean Energy PLC Wednesday said it has agreed a deal with Macquarie Bank Ltd to hedge part of the production expected from its flagship Sugarloaf AMI Project onshore Texas, as required under a financing agreement with the lender.
The hedging deal was agreed with Macquarie Bank one week after Empyrean secured a financing deal with the bank that provided it with additional debt to fund the development of Sugarloaf.
Macquarie last week made an additional USD11.0 million available to Empyrean and "indicated" that further amounts may also be available, depending on further credit approvals and other conditions. Including a scheduled USD1 million repayment due at the end of March, the total amount outstanding on the facility is equal to USD21.7 million. On revealing that financing deal, Empyrean had said that it was "required to enter into hedging arrangements acceptable to Macquarie" over part of its production.
Empyrean has a 3% working interest in Sugarloaf, a project operated by Marathon Oil Corp's Marathon Oil Co.
The hedging deal agreed comes in the form of a commodity swap for a total of 97,371 barrels of oil for a 12-month period that began at the start of April and ends at the end of March 2016.
According to Macquarie, the swap is for a fixed price of USD51 per barrel of oil based on the price of West Texas Intermediate futures on the New York Mercantile Exchange.
"For each monthly calculation period, if the hedged price exceeds the floating price or spot price for WTI, Macquarie shall pay Empyrean the difference multiplied by the relevant notional quantity for the calculation period. If the floating price or spot price exceeds the hedged price, Empyrean shall pay Macquarie the difference multiplied by the relevant notional quantity for the calculation period," the company's statement said.
In addition to the swap deal, Empyrean said it has agreed on put and call option arrangements with Macquarie to effect a collar over 102,469 barrels of oil for the two years between April 1, 2016, and the end of March 2018.
"Pursuant to the options, the price attributable to the relevant portion of production will not fall below USD50 per barrel of oil and not exceed USD62.80," Empyrean said.
Empyrean added that for each of the swap and options deals, "the quantity of production which is subject to the arrangements decreases on a monthly basis through to the expiry of the relevant arrangement, allowing the company to benefit from any recovery in underlying commodity prices".
Empyrean shares were down 1.6% at 7.50 pence on Wednesday.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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Empyrean (EME)