Weakened resistance

Author Toby Shelley

A flu epidemic first picks off the weak, the impoverished and others pre-disposed to infection. An oil price collapse does pretty much the same.

A flu epidemic first picks off the weak, the impoverished and others pre-disposed to infection. An oil price collapse does pretty much the same.

At the end of December, Company Watch reckoned that of the 126 London-listed oil and gas companies, 70pc were loss making and 38 were likely to burn through their cash inside one year.

The first sniffles are already afflicting the corporate body. Nigeria-focused Afren’s share price was 145p at the end of June. It was under 7p today. It has agreed a deferred debt repayment but admitted it does not have the cash to continue operations as things stand. Nigerian independent Seplat on 13 January walked away from a possible takeover bid. Afren’s resistance to infection was weakened by a corporate governance scandal, production issues, and a likely cut in reserve estimates on its acreage in northern Iraq.

Kazakhstan-focused Max Petroleum’s chances of securing a financing deal with AGR Energy fell away with crude prices and the board warned last week that “there is only a short period remaining to achieve such a refinancing and if current efforts are unsuccessful, then the consequences will be negative for all stakeholders in the company”.

Shareholders in Norwegian independent Noreco must be feeling pretty sick.  In November 2013, the company gained a new lease of life when bondholders agreed a refinancing plan after output was hit and costs increased by problems on the Siri platform and lower than expected output from its flagship asset, the UK Huntington field, in which it has a 20pc stake.  Move forward one year and Huntington continues to be dogged by problems on the Cats riser. Today, the board summoned bondholders to another meeting to mull another restructuring with the board warning: “Noreco and several of its subsidiaries are already in breach of their obligations towards financial and trade creditors, including certain licence partners. The company has now stopped intra-group funding pending approval of the restructuring proposal. The situation is precarious and it is becoming increasingly difficult to operate the various assets of the company in the current situation.”

The fear of the epidemic is itself contagious. Xcite Energy is operator of the Bentley heavy crude field development in the UK North Sea. Its share price has halved since late June. Last month, its chief executive felt compelled to record a video clip for investors imploring them to listen only to information released by the firm and to “ignore misinformation and ill-informed commentary”.

Does a positive mental attitude fend off financial flu as well or better than a (cash) injection? Australia and London-listed minnow Red Emperor Resources seems to think so. Market cap at the end of December of just A$8mn, forced by circumstance to suspend activity in the former Somalian territory of Puntland — worried about the future? None of it. Today, Red Emperor declared that “the fall in oil prices has increased the number of opportunities on the market… the company is in a strong position to exploit these opportunities, which would have been unobtainable just six months ago”. That’s the spirit!

For more information please contact OilBlog@argusmedia.com

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