Longboat Energy PLC (AIM:LBE) shares halved in value in Wednesday’s early deals after it revealed that production from the Statfjord Satellite Fields has underperformed.
Delays, underwhelming production rates and cost overruns have put in question the company’s continuing participation in an acquisitive joint venture with Japan Petroleum Exploration Co Ltd (JAPEX).
It told investors that ‘there were good grounds to believe that the production ramp up from the Equinor operated Statfjord Satellites would be delivered, actual performance has been disappointing to date despite an increase in production from 2023’.
The Statfjord Satellite Fields is part of the JAPEX joint venture, which in July 2023 saw the vehicle Longboat JAPEX Norge (LJN) funded with $20 million of cash plus a $100 million facility earmarked for future acquisitions.
Production problems
Production from Statfjord Satellites – operated by Equinor and 4% owned by LJN - averaged 544 barrels of oil equivalent per day (boepd) over the past four weeks and 401 boepd from January to April which was significantly below forecasts, Londboat said.
The production rate has been hampered by the delayed start-up of the Statfjord Øst field, due to problems with well completions.
Two of five redevelopment wells drilled in 2023 currently remain offline, it added.
Work to combat the problems is expected to continue through the second and third quarters.
Guidance downgrade
As a result of the problems, Longboat has now downgraded its production guidance to just 575-625 boepd for 2024.
It also warned investors about the impact of cost overruns, which have seen the project’s capex spend doubling to $64 million (685 million Kroner).
At the same time, it noted that the Kveikje discovery, 10% owned by LJN, has stalled in development amid disagreement between the project partners – which resulted in intervention by the Norwegian regulator – which Longboat said is expected to delay the realisation of the project’s “significant value”.
The company noted that the low production performance and cost overruns have squeezed LJN's working capital position.
Longboat has a $100 million finance facility, of which $17 million has been drawn, provided by JAPEX, but the use of that facility is restricted only to fund new acquisitions.
Warning over LJN stake
The company, meanwhile, noted that if it cannot ‘in a timely manner’ cover its share of LJN’s costs, then it would be required to forfeit some or all of its participation in the joint venture.
It has now launched a detailed review of its cost base and is already taking measures to ensure its overheads are in line with the current size and scale of the business.
Longboat said it intends to ensure its capital is being directed towards the areas with the greatest value-creation potential. It expects to give investors a further update at the end of June.
"While Longboat faces a series of near-term financial challenges, I am confident that the steps we are currently taking will allow the slimmed-down business to create significant shareholder value from our high-quality positioning in Norway and our emerging portfolio in Malaysia,” chief executive Nick Ingrassia said in a statement.
In London, Longboat shares dropped 10.37p or 57% to change hands at 7.63p each.