Christmas has come early for Independent Oil & Gas (LON:IOG) and its investors as it has now confirmed that the planned Skipper appraisal well is now funded.
IOG sees Skipper as a ‘transformational’ project and it is planned to be the first step in the group’s strategy to build production through hub developments.
Crucially, today’s funding confirms the company will now have sufficient working capital for the next twelve months and as such draws a line beneath what had been an uncertain time for the North Sea junior.
“Our share price shows that people expected us to not get funding and go under,” IOG chief executive Mark Routh told Proactive Investors.
“It (the share price) was absolutely no reflection of the value of our assets.”
“So, it is a transformational deal for us.”
He added: “The biggest hurdle for a company of our size was to get the funding agreed.”
Routh describes Skipper as “an extremely low risk appraisal”. He explains that the primary objective is to retrieve an oil sample from the known reservoir which will be used to help optimise the future oilfield development.
He also highlights that with an estimated breakeven price of around US$34 per barrel and the project would be economically viable even at current crude prices.
Additionally, assuming the appraisal is a success, the project would be confirmed as having up to 35mln barrels of reserves (the oil is currently defined as 2C resources).
“At Skipper, from our point of view, is about when we develop rather than if we develop,” Routh said.
“The Skipper field will be the jewel in our crown because 35mln barrels of reserves is a big number for a company of our size, and in fact would be a big number for companies much larger than us.
“And, of course, we’ll be looking at other deals and other routes to ensuring we can finance our activity without having to issue too many more shares.”
Looking closer at the details of today’s deal, IOG has now secured loan agreements with GE Oil & Gas UK and London Oil & Gas Ltd will provide the company with £4.75mln.
Separately agreements are in place for some £4.5mln of well costs to be deferred until December 2016.
The company now has two weeks (until December 21) to conclude a transaction to take full ownership of Skipper – by acquiring the 50% currently owned by Alpha Petroleum, as previously agreed.
It is now anticipated that the drilling operations will start for the Skipper appraisal well in late January or early February, subject to rig contract signing and IOG being approved as an operator by the UK regulator.
Routh highlighted that the recently established OGA has been “a breath of fresh air” by allowing some flexibility on licence terms to smaller companies that are able to demonstrate that they’re serious about carrying out work in the North Sea.
He also says that the current industry conditions have allowed otherwise unlikely arrangements to be made, particularly with contractors and service providers.
“For us, although we are a small company, it is just the right time to be doing things like this.
“We can take advantage of the fact that equipment is out there, and it is not in high demand at the moment. So, we can get it at a reduced price.
“These deferred payment terms are important to us. In times of high oil prices these deals wouldn’t be available, the equipment would be fully utilised.
“But as it is standing idle, contractors have to cover their costs somehow, and a company like us can in come with an offer.”
The company now expects to finalise permits and a series of contracts to enable the January or February spud date.
So, whilst investors can enjoy today’s early Christmas present it is likely to be a busy time for IOG over the festive period, with a phase of important news flow expected before the year’s end.
IOG shares advanced as much as 1.75p, 31%, on Monday to trade at 7.38p each.