Hopes have been lifted that UK oil and gas producer IGas Energy (IGAS:AIM) will soon attract a strategic investor and receive money to help ease debt pressures.
IGas confirms it is now in ‘well progressed discussions’ with one particular (unnamed) party. However, investors seem disappointed that IGas still hasn’t secured an actual deal as its shares fall 5.3% to 11.01p on the news.
DANGER ZONE
The £33m business is under pressure to keep its debt levels out of the danger zone.
It expects to breach its borrowing limits at the end of 2016, yet believes it has some breathing space until June 2017 at the very latest.
‘As previously disclosed, the company confirms that its current forecasts project non-compliance with its leverage covenants as at 31 December 2016,’ it says in today’s statement.
‘The company’s position, following receipt of legal advice, remains that in the event of a breach of the leverage covenants, an equity cure provision exists within the bond agreements, such that a breach can be cured within 25 business days of the delivery of the compliance certificate for that period.
‘For the twelve months ending 31 December 2016, the compliance certificate must be delivered by 30 April 2017, and accordingly the latest date for any equity cure would be early June 2017.’
IGas had $32m (£26m) cash in the bank as at 22 December.
It had £83.5m net debt as at 30 June 2016.
'A RAY OF LIGHT'
Canaccord Genuity analyst Charlie Sharp calls today’s announcement ‘a ray of light’.
He comments: ‘If the company can successfully deal with these matters, then with the lower cost structures in the industry, a more positive outlook for oil prices, and the promise of a busier operational period for shale gas evaluation in 2017, the longer term projections are far more attractive than in 2016.’
IGas has a portfolio of production and exploration assets focused on three regions: the North West, East Midlands and the Weald Basin in Southern England. It has 29 fields predominantly producing oil.
Bondholder TEOG recently pushed IGAS to sell its conventional assets in order to strengthen the balance sheet.
