Independent Oil and Gas (LON:IOG) shares gave back a large chunk of recent gains on Wednesday as the pivotal Skipper appraisal project, in the North Sea, was temporarily put on hold.
The company told investors that the Skipper well would be delayed until there is greater stability and clarity in the oil market.
“Whilst it has been a very difficult decision, it has undoubtedly become prudent to postpone the Skipper appraisal well given the significant further oil market weakness in recent weeks, as well as unsettled weather conditions in the North Sea,” said Mark Routh, IOG chief executive.
On AIM, the company’s shares fell 3.38p, 39%, to change hands at 5.25p each.
It comes after management made great strides to take the project forward.
In recent months IOG had agreed innovative deals with third party contractors and lenders that would’ve allowed it to drill without having to pay too much up-front.
The company also got sufficient backing that it was able to complete the full 100% acquisition of Skipper, be confirmed as operator by the UK authorities and land a three month extension to the licence.
All these milestones were aimed at drilling the appraisal well in the first quarter of 2016, and the associated loan arrangements are due to expire at the end of the year.
IOG has agreed, in principle, a new £10mln funding deal that it believes will facilitate the rescheduling of the drill programme.
The proposed financing has been agreed with London Oil and Gas (LOG), which is one of the group’s existing lenders, and is in addition to the other loans (of £2.75mln and £0.8mln) that are thus far undrawn.
It would be a convertible loan, which could be transferred into equity at price of 10p per share.
IOG says the £10mln would give it financial security until at least mid-2018.
Some £3mln of the cash would specifically cover G&A and licence fees for the next 30 months, while the other £7mln would be earmarked to bolster the group’s portfolio, organically and by acquisition.
The loan would have to be fully drawn within three years, and the money will be repayable (or converted to shares) within a three year period from the draw-down.
Additionally, it is stipulated that the loan should not be used to repay debt.
Should the funding deal go ahead, two directors of London Oil & Gas will be invited to join the company’s board.
IOG, meanwhile, warned shareholders that it will have an urgent funding requirement if it is unable to close the proposed funding.