Kea Petroleum seeks bank facility to confirm going concern status

London-based Taranaki oil and gas company Kea Petroleum needs to sign a bank facility to fund capital expenditure on production facilities and ongoing testing of prospects, projected cashflows from two semi-developed wells that have been producing for less than two months.

The AIM-listed onshore explorer and recent producer, is confident projected oil and gas from the Puka-1 and 2 wells will be secure the bank facility, which was under negotiation and had yet to be signed at the time the accounts for the year to May 31 were filed with the London Stock Exchange on Oct. 31.

"We are increasingly comfortable that the company's estimate of 1-3 million barrels of oil for the Puka field will be confirmed and that the upper limit of 7-10 million barrels of oil remains achievable on a P50 basis," said chairman Ian Gowrie-Smith in a statement.

Kea's "first priority" is to drill again in the Puka prospect seeking "better expected sands" in the Puka channel fairway, after the first two wells turned out to have been drilled on the westernmost edge of the fairway. They have accessed two different hydrocarbon sources, are flowing at different rates, and initial flows of 790 barrels per day had fallen to less than 200."

"Stable production rates have yet to be established from the two wells, with ongoing testing to determine optimum rates," said managing director Richard Parkes in an operational review. "The directors have prepared operating forecasts which assume a minimum level of expenditure to confirm with the requirements of the group's licences for the next 12 months."

These included "significant projected revenue from Puka ... that would along with existing cash balances, fund the ongoing programme."

However, the economics of oil production at the Puka site made more wells "an absolute necessity," said Gowrie-Smith.

"The extra time and money involved in the whole process of taking the two different Puka discoveries into production has somewhat diminished the choices going forward," he said. A strategic review, using consultants Gresham Partners, will help decide best how to develop those discoveries and approach exploratory drilling in the Mercury prospect.

The company had hoped for successes at three other plays: Beluga, Hickman and Mauku, but none produced a commercial find. PEP51155, covering the Beluga and Hickman prospects, was handed back during the year.

Drilling in Mauku found no hydrocarbons, despite the firm's geological analysis of 3D on the prospect proving to be "very accurate."

"Unfortunately, one question that can't be answered until drilling takes place is whether a prospect is charged with hydrocarbons. It wasn't," said Gowrie-Smith.

The company remains optimistic about what Gowrie-Smith called the "big sleeper" in its portfolio: 100 percent of the Mercury licence, where early analysis of 3D seismic is "encouraging" and invitations for farmout are anticipated "in the first quarter of next year", following final data interpretation "early in the New Year."

"My view is that there is sufficient worth in Puka and Mercury to enable growth and generate further value in the company," said Gowrie-Smith.

In the year to May 31, Kea reported a net loss for the year of 9.4 million British Pounds, compared with 3.0 million pounds in the previous year, and included a write-off of 7.2 million pounds on the Mauku well.

Revenue from sales of oil and gas were 829,000 pounds, compared with 32,000 pounds the year before. Cash on hand at balance date was 2.8 million pounds, with annual committed administrative expenses of 497,000 pounds.

Notes to the account say the Puka production forecasts were accepted by directors as demonstrating a "reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future", and "well within the pending bank facility."

While the combination of factors affecting the company meant there was "a material uncertainty that casts significant doubt upon the group's ability to continue as a going concern," confidence in the Puka forecasts meant the directors continued to adopt a "going concern" basis for continuing to operate.

(BusinessDesk)