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1 Actualité sur les juniors le Ven 26 Déc - 11:19


Un palmarés de la position en besoin de cash des juniors

Source oilbarrel

December 15, 2008

Cash Is King In The New Economy As Oil Juniors Face Up To Credit Crunch

By Martin Clark

It is hard to get away from talk of recession these days. Crude oil prices have lost about US$100 since their peak this summer, amid expectations of falling global demand, while equities prices have likewise tumbled, slashing the value of stocks across the board.
A random glance through newspaper headlines tells us that Rio Tinto is cutting 14,000 jobs to ease its debt burden, while China’s exports have dropped for the first time in seven years as the recession bites. “Global demand for oil to plummet,” the FT reported on Tuesday December 9. Stories from the financial sector make for even worse reading.

Against this deteriorating economic backdrop smaller oil companies are trying to hold on. Those with some production to help weather the storm are perhaps better placed than those without. Again, those with large debt and little cash in the bank are probably more exposed than those with greater liquidity and fewer commitments.

Island Oil & Gas boss Paul Griffiths said recently that oil independents must learn to be both “creative and aggressive” if they are to survive. The company raised US$25 million from the sale of its Netherlands business earlier this year, though it is still keen on further asset sales to trim the portfolio and at the same time bump up cash reserves.

The number of E&P juniors seeking finance in the current climate – including some fairly paltry sums – to maintain working capital illustrates that times are indeed getting tough. has itself reported on many of these fund-raisings, highlighting a pattern that also shows how accessing this cash is becoming ever more challenging.

With banks feeling the pain themselves, and some now propped up by the taxpayer, these are not the free and easy lending conditions that they once were. Moreover, with crude prices crashing down, the oil sector no longer holds the same alluring appeal it once did.

Asset sales, farm-outs, even mergers and acquisitions, are all back in fashion, as junior players seek to shore up the defences against the rising tide of gloom and recession. But with a market now awash with opportunities – and not many buying – it’s a tough sell.

Max Petroleum said last week that it was finding it harder than it expected to secure a farm-in partner for its Kazakhstan acreage. The company is looking to sell a portion of its equity interests in Astrakhanskiy and Blocks A&E license areas in western Kazakhstan.

Though it has held discussions with potential suitors in recent months it said that it had been unable to complete a satisfactory commercial transaction and could not predict whether or not it would be able to do so going forward.

According to analysts Fox Davies Capital the more appealing assets are those that are already delivering production and generating real income “Given very low equity prices, it is currently often more attractive for industry players to farm in to commercial or sub-commercial assets than pure exploration plays,” it said in a briefing note.

Dilution of equity on assets has emerged as a key way of raising money, or at least securing funding pledges for future work commitments in the current climate.

US-focused Irvine Energy is another that is actively engaged in farm-out talks although it has thrown open the door far wider, hinting that it might be ready to contemplate some sort of merger to reduce its capital spend.

It was in the markets recently raising £610,000 through a share placement for working capital to help tide it over into 2009. A company that does have some production, Irvine Energy’s problems have been compounded by partner and operator Metro Energy holding back its revenues amid an ongoing row over cost over-runs.

Irvine now has about nine months to complete some sort of transaction or face the prospect of dipping back into the markets. It said it would need to raise additional finance within about 12 months if no asset disposals were completed, though of course, lending conditions – and the oil price – might have shifted significantly in that timeframe.

Black Rock Oil & Gas has been searching for partners for much of the year when things started to turn sour. It has now entered advanced talks with one unnamed suitor for a possible equity subscription. The company has a portfolio of assets in the UK and Colombia, selling an Australia property earlier in 2008.

These are desperate times, however, with managing director John Cubbitt lending just £2,500 to the company on December 10 to keep the wheels moving while talks continue. This is not a large amount of money in the E&P business – not even on the High Street – so discussions will need to crack on if the company is to progress its upstream agenda.

Another small US-focused company, Empyrean Energy, raised £500,000 recently to top up its cash position as it matures its flagship Sugarloaf project. At the time, CEO Tom Kelly cited the “particularly challenging” prevailing capital raising markets.

Again, this is not really a great deal of money to fund exploration activities – where the cost of drilling a well can run into the many millions of dollars – though it will keep the company moving into next year. Luckily for Empyrean, its well costs are not as grand as those earning a living in the more costly deep offshore.

These are hard times for all, and with banks unable or unwilling to lend freely, oil companies would do well to heed the advice of Island’s Paul Griffiths. That is not to say that financing is not there for the right projects or for larger well-heeled sponsors.

The project financing market has also been severely squeezed but for the likes of BP and Shell there are always ways of delivering. Indeed, one of the beauties of being a larger enterprise, with strong production and cashflow, is the prospect of self-financing.

These are issues facing Tullow Oil which, though it is a strong producer with decent income and cash in the bank, still needs to generate substantial funding to get its giant Jubilee offshore development in Ghana off the ground.

Other Africa-focused companies further down the chain perhaps face greater challenges.

East Africa-focused Artumas Group recently highlighted cost containment among its core priorities in its Q3 results at the end of November. Gasol plc, which is rolling out a gas business across West Africa, is also in talks with a strategic partner to raise around £3 million for working capital to help it through the next 12 months.

Aminex plc, which is progressing upstream projects in Kenya and Tanzania, could provide something of a model in its change in emphasis during the past year or so. While the company clearly has its heart set on these high-impact prospects, it has also targeted the US for some easy, near-term production to get the cash flowing.

There is nothing creative or aggressive in this strategy, just a bit of common sense by keeping the home fires burning while saving the bigger fish for later on.

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