UK Explorer in Critical Talks over Plans to Delay its UK Skipper Well

Independent Oil & Gas, the UK North Sea-focused explorer, is delaying the Skipper appraisal well from this quarter until later this year in the wake of poor economics and bad weather, it said in a London Stock Exchange announcement January 13. This has implications both for its license and for its funding, and “critical talks” are ongoing with the UK regulator Oil & Gas authority and with lenders, it said.

The existing timetable means IOG must repay loans and contractor deferral funding by the end of 2016, but IOG now considers this refinancing risk to be greater owing to “very weak” commodity prices and negative market sentiment towards oil and gas. Further, it said the “very bad weather in the North Sea has increased concerns that significant delays could be encountered or a sub-optimal well result may be achieved.”

IOG now anticipates the Skipper appraisal well to be drilled later this year, meaning the company needs agreement from its principal lenders and contractors and agreement from the offshore regulator Oil & Gas Authority to extend the Skipper licence beyond March 30.

To facilitate this rescheduling and also to provide capital for potential acquisitions, London Oil and Gas (LOG) has agreed terms in principle with IOG to provide a further £10mn ($14.4mn) of convertible debt funding.

This comes on top of the £2.75mn and £0.8mn loans from LOG, both of which remain undrawn as certain conditions precedent to their drawdown have yet to be satisfied. The new loan would be secured against IOG's assets and also come with two board positions for LOG.

If IOG is unable to close this additional funding deal with LOG and draw down on the sums committed in short order, the company will have an urgent funding requirement, it said.

Of the £10mn, the company is proposing to use £7mn to “add value to the IOG portfolio, both organically and via acquisitions.” It sees significant opportunities in the wake of the downturn.