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Max Petroleum plc (LSE:MXP) has found a white knight to fund its already over-budgeted exploration programme in Kazakhstan, thanks to one of the company’s driller, Zhandros Drilling LLP, who agreed to carry on exploration activities for the company in exchange for nearly 10% of the oil and gas explorer’s current issued capital.
In a statement released today, Max said Zhandros agreed to receive ordinary shares of 5 pence each on a monthly basis, for a total amount US$7 million as payment for drilling four shallow, post-salt wells and other related ancillary services, freeing up the company from worries of raising additional funds to carry on its programme.
The firm’s exploration contract in the more than 12,000-square kilometre Blocks A&E licence is to expire in March 2013, which gives the company less than a year’s time to find oil producing fields.
“The agreement with Zhanros allows us to continue with our post-salt exploration programme at a critical time as we work towards a broader financial solution,” said Michael Young, President and Chief Financial Officer of Max Petroleum.
Operational and Legal Impediments
Three weeks ago, on 16th July, the company decommissioned the rig that got stuck while drilling the NUR-1 well, after suspending the operation 12 days earlier. The well has been drilled beyond schedule and has already cost almost twice its initial budget of $23 million to $45 million.
On the 22nd June 2012, the company has said it was in talks with its lender, Macquarie Bank Limited, on ways to raise additional capital, as its credit facility only left it $3.8 million cash and it needed around $10 million to finish one well.
However, the announcement made by the company today did not say anything about how the more than 90 million shares to be issued to Zhandros will be raised, considering that the company earlier stated new regulations in the Kazakhstan prevent the firm from completing conventional equity financing.
The company has yet to return value to its shareholders as it has been posting losses since 2007, despite producing about 3,500 barrels of oil per day from five discovered fields.
Nonetheless, the market was upbeat with the news, as although this may not be a new thing for partners to put in a stake, the agreement by both parties makes investors and shareholders alike reinforces the likelihood of success in the acreage held by Max.
Shares were up 8.3% to 4.05 pence by 1:00 PM GMT, with a volume of over 21 million shares, making the company one of the heavy traders on the London Stock Exchange’s Alternative Investment Market today. Shares have fallen 56% since the company announced on 22nd June that drilling the NUR-1 well was unable to proceed.
Company Spotlight
Max Petroleum plc is an oil and gas exploration and production company focussing on Kazakhstan. The company was incorporated in the United Kingdom and joined trading on the Alternative Investment Market of the London Stock Exchange in 2005.
