Metgasco lets Elk run free

TROUBLED New South Wales hydrocarbon hunter Metgasco has axed its proposed merger with US-focused Elk Petroleum due to the recent hammering of the oil price and feedback that the junior will struggle to raise the funds needed to proceed with the merger.

Leeora Black

Metgasco boss Peter Henderson said that, based on discussions with numerous financial organisations, the company had concluded that the chance of securing acceptable finance was now “very low” due to a number of factors, including an oil price significantly lower than anticipated when the original merger terms were negotiated.

Four days of the oil price below $US50/bbl were enough to give Metgasco the trigger it needed to put the deal out of its misery.

Henderson said Metgasco would now seek to “realise value from its Clarence Moreton Basin exploration acreage”, although he did not expand on how Metgasco might do that given opposition from the NSW governments and the Northern Rivers community to conventional drilling, combined with the looming state election campaign and the company’s inability to get a production licence granted near Casino.

Metgasco has 2C gas resources of 4428 petajoules, based on the company’s understanding of the impact of the NSW government’s exclusion zones.

Henderson did not return Energy News’ request for comment.

The cash-strapped Elk has gone into a trading halt for several days while it considers its options. The cash from Metgasco would have helped it meet its enhanced oil recovery plans in the US where, unlike Metgasco in NSW, it could carry out operations.

Elk also needs to repay $1.69 million in loan funds owed to Metgasco within a month.

Elk had around $350,000 at the end of the last quarter, and minimal production from its Singleton Unit in Nebraska.

It was seeking to sell the Grieve EOR pipeline for $5.5 million, but that deal was struggled to completion and, in any case, the payments would be staged and unlikely to meet the Metgasco deadline.

The loan is secured against Elk’s assets in the US, including the Grieve oil field which is expected to begin production in 2017 – hopefully in time to meet rising oil prices.

Metgasco had around $9 million in the bank at the end of the last quarter, which places it better than many in the hunt for new assets.

The Elk merger was expected to conclude by the end of May.

Elk decided on the all-scrip merger after a strategic review and sale process that started in June failed to deliver anything of benefit for shareholders.

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