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Eland Oil & Gas to raise up to US$19.5mln as production in Nigeria ratchets up

An placing through an accelerated bookbuild at 55p will raise between US$14.5mln and US$19.5mln

picture of oil workers
Production at OML 40 is set to rise to 25,400 barrels per day

Nigeria-focused oil and gas group Eland Oil & Gas PLC ( LON:ELA) is to raise up to US$19.5mln to boost production from its OML 40 licence three-fold.

An accelerated bookbuild at 55p will raise the money, which has been earmarked for a workover and side-track of the Opuama-7 well, a new secure pipeline transfer point and early production system at the Gbetiokun-1 well, which is also being worked over.

“Current gross production stands at 11,500 barrels per day. Opuama-7’s workover will add a further 5,900 bopd to make a total of about 17,500 bopd,” said George Maxwell, chief executive.

Gbetiokun-1’s workover will deliver at least a further 8,000 bopd (gross) to OML 40 production, he added, bringing the total gross production to 25,400bopd (net 11,430 bopd), an amount well ahead of the last competent person’s estimate in April. 

Eland based its models on production of 15,500bopd at a netback (receipt) $24.74/per barrel, though it may earn considerably more than this by using the existing production route. 

The fund raise follows a tough year in 2016, when Eland was affected by the closure of the Forcados terminal in February after the pipeline was sabotaged although production had hit record levels by the end of the year.

WATCH: Zak Mir on Eland Oil & Gas

Production was shut down for over 10 months and with oil prices low Eland cut back hard on expenditure. Losses rose to US$30.4mln net (US$6.8mln). 

“"Despite a challenging market environment, Eland ended 2016 on a highly positive note,” Maxwell said.

Cantor's target price under review

Cantor Fitzgerald analyst Sam Wahab reiterated his ‘buy’ rating on Eland shares but placed his share price target under review, awaiting the results of the placing.

In a note to clients, the analyst said: “On a financial level, the company’s balance sheet had come under strain last year following a curtailment in output as a result of civil issues in West Africa, with cash currently standing at c.US$7.5mln.”

He added: “Nevertheless, we continue to be encouraged by Eland’s continued operational progress, with the company materially growing its production base since the turn of the year, in addition to identifying a number of alternative export routes.”

In late afternoon trading, Eland shares were  9.8%, or 6p lower at 55.5p.

 -- Adds analyst comment, share price --

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