There has been much speculation recently over the finances for LGO Energy PLC. The company has just recently provided an update of the situation with BNP Paribas where it revealed what the current situation is with it’s repayments. This helped its shareholders to get a better picture of the progress they have made in reducing the debt and, encouragingly, shows that further payments in the coming months will be paid in advance.
While the latest update (Finance and Goudron Field Update – 14th of June 2016) has answered some of the shareholders concerns, there were other questions that still remained. We took the opportunity to approach the company and present further questions the shareholders had to wanted ask. Neil Ritson, CEO of LGO, kindly provided the response below.
LSE SHARE TALK – As we now have the ability to look back with hindsight, as the business suffered from the global oil price crisis which was then compounded by the unfortunate issue of GY-678, LGO found itself the victim of a long sustained short attack. Going forward with the lessons learnt and wisdom gained is there anything you feel could be done to combat this happening again, in the event issues akin to the above happened again?
The behaviour of the market is beyond our control, however, what my team and I can focus on is the quality of the operations and how the business is funded, and who our funding partners are. There are plenty of lessons to be learnt about how to protect the business from unexpected downsides and considering the risks. We have put a number of measures in place at a Board level that will further mitigate execution risks in the future.
LSE SHARE TALK – GY-678 clearly has much potential especially as “Deep Wedge” was discovered, what are the plans going forward to utilise the huge upside from this well, along with timescales and costs
The immediate focus of the team as regards the deeper reservoirs is to plan a waterflood EOR since the 15 wells we have drilled, including GY-678, clearly show we have the resource base and that pressure maintenance will be key to longterm economic exploitation. That program, will be the subject of studies and permitting for at least 12 months. However, whilst we are planning the EOR we have up to 70 infill well locations to drill at the shallow, low risk, Mayaro Sandstone (also known as the Goudron Sandstones) level and that is where operational work will be focussed in 2016 and 2017.
LSE SHARE TALK – In the hope that LGO gain the licence renewal on our Spanish asset what are the plans in the short and long term? Note: bearing in mind shareholders would understandably have reservations on any further fund raising activity for such a large scale operation albeit a potentially lucrative one. As such would selling it with a fresh 10 year licence into a recovering oil price be an option?
Once we have the Spanish renewal we have plans to seek a partner. There was a lot of interest in the past, but the remaining licence duration was insufficient to progress to a deal. Whether such an arrangement carries the future cost of the redevelopment or goes further depends on a number of factors; however, as you point out a redevelopment of Ayoluengo with sidetracked wells is potentially very lucrative so we will want to ensure we have the right exposure to that phase.
LSE SHARE TALK – At the EGM it was mentioned that LGO were looking into the liability and future costs relating to the unfortunate issue of GY-678. Where are we now with this issue?
We have now resolved the liability issues and that is reflected in the various settlements we have with some creditors involved in that operation. It is not currently planned to re-enter the well, however, a redrill is part of the medium term plans. The data collected from the well is an important part of the EOR planning. Short term focus is on the Mayaro Sandstone program as it provides better economic value in a US$50/bbl environment and has substantially less risk.
LSE SHARE TALK – Have Petrotrin put in place any requirements regarding numbers of Wells and/or potentially which Wells they would prefer LGO to drill at any time in the future?
No we have no significant requirements from Petrotrin. Until the next automatic renewal of the IPSC in 2019 we have already exceeded the existing commitments by 5 wells (15 drilled against a 10 well commitment).
LSE SHARE TALK – As the business continues to rebuild by adding production and increasing its cashflow. Are there any plans set down for Icacos and Cedros?
Both Icacos and the Cedros/BOLT leases need new petroleum licences. Applications have been made, however, until the new licences are granted no new wells can be drilled. Production operations at the Icacos and Bonasse Fields are unaffected and both fields continue to produce at previous levels. Plans to increase production by drilling new wells have been rolled over into 2017 pending the granting of new licences.
LSE SHARE TALK – For the purposes of clarification what are the outstanding payments regarding BOLT, as obviously this affects LGO moving forward with this issue?
The final payment for the BOLT deep rights set in 2013 is now US$1.4 million. However, LGO and BOLT are actively discussing alternative arrangements consistent with the current oil price projections and it is likely that the final payment will be substantially reduced.
LSE SHARE TALK – Have BNPP set out clear conditions on re-negotiating LGO’s breach of covenants?
The form of the covenant arrangements makes it highly unlikely that LGO can remedy the covenant breaches in the current oil price environment so we, and BNPP, have been focusing on ensuring that there is no payment default; and looking for ways to restructure the loan, including its early repayment. Those discussions are continuing.
LSE SHARE TALK – What is LGOs immediate strategy and goals for the short term and then equally for the long term?
The short term strategy is to return to normal operations as soon as practical. As you know we are working on a well recompletion program in Goudron and hope now to return to the planned Mayaro Sandstone infill drilling in the 4th quarter. The company’s longer term strategy remains unaltered and we wish to continue to build a Trinidad focussed production business in close partnership with Petrotrin.
LSE SHARE TALK – Roughly what is the timescale for each of the 7 recompletion wells, then moving forward for each shallow well in Goudron?
Roughly two per month through the second half of 2016. Permission is sought from Petrotrin and the Ministry of Energy as necessary on a well by well basis immediately prior to the work being commenced.
LSE SHARE TALK – Shareholders of any company are wary of a consolidation of shares. Could this be ruled out as an option during the current financial year?
LGO has no plans for a roll back of its share structure. Only a major change in funding or a business consolidation is likely to lead to a consolidation of the share capital.
LSE SHARE TALK – From businesses experience, is there a sustained level of WTI that enables a satisfactory amount of cash flow coming in to self-finance the business to the next level? i.e. $60 a barrel or more?
Once all the 2015 creditors are paid the business will be sustainable at current oil prices and below.
LSE SHARE TALK – Regarding depletion rates, is the new approach of tackling this issue demonstrated in the recently completed GY-671, whereby the well is substantially choked back with an aim to sustain a respectable level over a longer period?
The long term approach to depletion rates remains a waterflood scheme. Nothing has changed in that regard LGO always know and made it clear that an EOR scheme was a vital part of the field development plan. In the interim period alternative well strategies are being tried. This issue however does not effect the planned Mayaro Sandstones infill wells which are pumped from an early phase and have long slow depletion curves.
LSE SHARE TALK – The RNS, dated 6th April, stated Altech Rig 1 was being mobilized to the field to work alongside Altech Rig 2. It also stated the company owned Columbus-1 Rig was being considered for mobilising over the next few months. How is that consideration standing now 2 months on?
We have decided to convert Columbus #1 to a light drilling rig and bring it into the field for the Mayaro Sandstone drilling. Any other needs in the short term can be met from Altech’s rig fleet.
LSE SHARE TALK – The costings for the GS drilling campaign per well was put at $400k, how much of that is a payment to our subsidiary for the rig (Columbus)?
The Columbus#1 rig is owned with an equipment lease from Royal Bank of Canada and sufficient payment will be made to service the lease payments with only an administrative mark-up so this is a relatively cheap option as no profit element will be built in.
LSE SHARE TALK – When do LGO expect to launch this campaign?
In the 4th quarter, but it still depends on finance being available.
LSE SHARE TALK – Is there any gas to oil ratio on the GS from previous wells or is it minimal?
There is minimal gas in the Mayaro (Goudron) Sandstone reservoirs. Oil is at hydrostatic pressure and will be pumped from inception.
LSE SHARE TALK – Has the heavy work over rig now had the modifications done to enable it to drill GS?
Those modifications will be carried out over the summer, once the company has secured funds and it has been confirmed that for the drilling campaign will go ahead in Q4.
From the response received, there is a clear strategy to bring the company back on track and maintain it’s ability to continue with its low cost operations through difficult times. Oil prices have moved far North from the lows experienced during the first quarter of the year and this will undoubtedly benefit its financial situation.
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