Lochard Energy’s (LON:LHD) new management team attempted to draw a line under the group’s historical problems today.
This comes two months after the new board took control and just weeks after the group’s 10 per cent owned Athena oil field began production in the North Sea.
“Despite some of the commercially questionable arrangements entered into by the previous management the business is about to start receiving oil revenues and is better placed for future success,” chairman Clive Carver said.
“The income from production from Athena should place the company in a strong position to consider its strategic options later in the year."
In a comprehensive corporate update Lochard said it has agreed the final payment relating to the sale of its non-core drilling fluid business. It will receive A$13.9 mln to complete the deal.
Lochard also revealed that it has agreed a settlement for an unsuccessful legal challenge last year. As a result it will pay Senergy UK a total of US$9 million in monthly instalments – Senergy had originally claimed US$12 million.
It also said it has reluctantly agreed to pay a A$1.3 million severance claim by the company’s previous chief executive. This decision was taken on the basis of strong legal advice, the company said.
Lochard also highlighted that in order to fund its participation in the Athena development the company’s previous management had taken a US$14 million loan from the Gemini Oil & Gas Fund.
This loan will cost the firm at least US$28 million to repay – plus a 5 per cent residual royalty on production from the Athena field.
Under the terms of the loan Lochard is required to share 50 per cent of its production revenues with Gemini up to the first US$14 million. After that Gemini will receive 20 per cent of the production revenue until a further US$14 million has been paid, subsequently the 5 per cent royalty kicks-in.
Today, Lochard says it expects to have repaid the first US$14 million by February and the second US$14 million will be paid by November 2014.
Earlier this week it was revealed that a blockage had been found in one of the Athena field’s four production wells.
The field’s production initially peaked at 22,000 barrels a day (giving Lochared 2,200 barrels) after its start-up in April. But it has subsequently dropped to 12,000 barrels a day, meaning the company’s share of production has dropped to 1,200 barrels per day.
Lochard says that it doesn’t believe production rates will increase from the current level before the end of this year. And given the group’s payment commitments it has decided to set up a £3 million draw-down facility to safeguard its working capital against any further interruption.
The facility is being provided by its largest shareholder Henderson Global Investors, owning 28.99 per cent of the company. And it will be available to the company until September 2013.
Meanwhile focussing on operational matters Lochard says its focus is now turning to the Thunderball and Moby discoveries, which are also located in the North Sea.
It is committed to drilling a well on the Thunderbird discovery by February. And to support this plan it is seeking a new partner and a farm-out process is already underway.
Today it said that the Canadian Imperial Bank of Commerce (CIBC) has now been hired to assist in this process. Also Lochard says it has already received early interest from a number of parties and it is now preparing a data-room.
Additionally Lochard also highlighted that it submitted a number of bids for new North Sea assets in the recent bidding round, held by the UK Department of Energy and Climate Change.
It was the UK’s twenty-seventh and busiest bidding round. And the final decisions are expected in August.
City broker Merchant Securities recommended a ‘buy’ on the stock following a review, and the broker is now targeting 11.3p a share. Meanwhile analysts at finnCap said today’s update was mixed and it believes the stock is cheap at current level but risks remain high.
On AIM this morning Lochard shares are down 0.38p, or 4.5 per cent, trading at 7.88p.