IGas Energy PLC (LON:IGAS) told investors it believes a “consensual resolution” to debt negotiations is likely following constructive discussions with its new largest secured bondholder.
It explained that its point of view is based on the understanding that the bondholders would face a potentially significant loss of value if such an agreement can’t be reached.
Chief executive Stephen Bowler added that talks are also underway with possible new strategic investors.
“We acknowledge the challenges that our current capital structure presents and are engaged with our bondholders and potential strategic investors to right-size our balance sheet in light of the current oil price environment,” he said.
He also noted that IGas’s shale gas business could potentially see de-risking catalysts soon.
Bowler explains: “There is potential material upside in our assets and the next few weeks will see important news flow for the UK shale industry with the upcoming decision from Government on the appeals by Cuadrilla and the determination of our Springs Road planning application."
The resource company, meanwhile, used its interim results statement to highlight the value of its assets.
Third party estimates put the value of the group’s proved and probable (2P) reserves at US$287mln (based on a forward oil curve that sees crude prices gradually recover to around US$80 by 2020). It has 13.77mln barrels of conventional 2P reserves, and 21.96mln barrels of contingent oil resources.
UK shale gas resources are, meanwhile, estimated at 2.5 trillion cubic feet, which is equivalent to 440mln barrels oil equivalent. A value is not given for these resources, which require more evaluation before they can be considered commercially viable.
Advancing the shale gas interests is a key focus for IGas, and an important milestone is now approaching. A planning application for a two well programme, partnered with French major Total, will be considered by Nottinghamshire County Council committee in the first week of October.
Earlier this week the council’s planning officer recommended the application for approval.
The two well programme is part of the group’s five year shale development plan.
IGas’s conventional oil business, meanwhile, yielded 2,299 barrels oil equivalent per day (boepd) in the six months period, compared to 2,540 boepd in the comparative months of last year.
It expects that production for the full year will be in the range of 2,400 to 2,600 boepd.
In interim results for the six months ended June 30, released this morning, IGas reported revenue of £12.1mln, compared to £17.6mln in the corresponding period of 2015, and reported adjusted earnings (EBITDA) of £5.1mln versus £7.4mln. Operating costs were cut to US$27.5 per barrel, from US$31.
It had a £25.2mln loss after tax, compared to £19.3mln loss in the first half of last year.
Based on current forecasts IGas will be in ‘non-compliance’ with its daily liquidity covenants by the second half of October, and the leverage covenants will be tested against full year financial results due for publishing in April 2017.
IGas highlighted that it retains significant cash resources of US$27.6mln, following a scheduled US$9.6mln interest and amortisation payment to bondholders in September. The company noted that it holds US$21.1mln of its own bonds.
The liquidity covenant currently requires IGas to maintain at least US$25.9mln of cash.
Bowler concluded: “The cost saving initiatives we put in place are continuing to benefit our operational cash flows and production rates are also improving since the period end, currently c.2,600 boepd.”