KEA PETROLEUM is considering funding options for the drilling of a high-impact well at its onshore PEP 51153 licence area, located close to the company’s Puka production station.
In an announcement to the London Stock Exchange’s Alternative Investment Market, Kea said it would need to raise £3 million to pay for the preparation and drilling stages of the well, as well as to meet operational and corporate overheads to the end of the drilling stage.
Kea plans to drill the well in the third quarter of 2015, testing the Shannon prospect in the Tikorangi limestone, which the group said was located some 1,000 metres underneath the Puka Mount Messenger sand reservoir.
“This same limestone formation produced 24 million barrels on the next door mining permit in a field called Waihapa not owned by the Company,” Kea said in a statement to shareholders.
Kea has a 70 per cent interest in the permit, with joint venture partner MEO New Zealand holding the remaining 30%.
Kea plans to hold a general meeting on 8 May to seek authority to issue new shares, in order to be in a position to raise equity funds should it agree terms with investors.
“The Company’s current cash resources are expected to be sufficient for its immediate working capital needs until shortly after the date of the general meeting,” the group said in an announcement.
“If the Company does not raise sufficient funds, the Company would not have cash resources to meet its ongoing commitments in relation to exploration activities, or maintain current levels of working capital expenditure and would need to consider alternative options including disposals of assets, likely to be at ‘fire sale’ values if
achievable at all, or a sale of the Company at a price that the Directors believe would not recognise the potential long-term value of the business.”
“In addition, should the Company or its subsidiaries be forced to make an arrangement with creditors or suffer some other insolvency event then title to its exploration assets could be lost,” Kea said.
While Kea said that MEO had indicated it may be prepared to contribute towards drilling the prospect, the company was still seeking a farm-in partner that would provide it with enough captital to drill Shannon 1 independently.
“Under the terms of the joint venture agreement with MEO, if Kea funds the whole of the drilling, it is primarily entitled to the full benefit of production but MEO has the right at a later date to buy back into the well by reimbursing Kea for its proportionate share of the costs incurred plus a substantial penalty payment,” Kea said.