Oil and gas sector companies are really starting to feel the pinch. PA Resources (STO: PAR), which explores, acquires, develops and sells oil and gas from the said resources has been in negotiations with its creditors to restructure debt. Those aren't progressing quickly enough. The company has today filed for corporate restructuring to attempt to shield it from its creditors. Previously the lenders had agreed to defer interest payments until March 31st. PA Resources had been proposing further delay and waiver on covenants.
After deep losses and a massive impairment in 2014, its equity had fallen deep into negative territory. The company thus had to prepare balance sheet for liquidation purposes. That showed a mildly positive equity. Shareholders voted against liquidation in the ensuing extraordinary general meeting. In eight months from the EGM, the situation will be revisited and equity needs to be more than half of the registered share capital. Obviously the company has been attempting some sort of conversion of debt into equity that would mitigate the situation.
Some bondholders however seem to be more willing to take the hit in liquidation rather than make an uncertain bet in sector revival. PA Resources has two big unsecured bond loans. The 900 million NOK bond loan issued in 2011 has part of its principal to be amortized in April 5th 2015 and the loan matures on April 5th 2016. That loan currently has 675 million NOK outstanding (12.25% margin). The 1 billion SEK loan from 2013 has 750 million SEK outstanding (margin 13.5%). Its date of maturity is on March 3 2016.
Global commodity trading company Gunvor is both the largest shareholder and largest creditor of PA Resources. Gunvor has also been in the news since it used to be part-owned by Gennady Timchenko, a citizen of Russia, Finland and Armenia, who was included in the United States sanction list. Timchenko therefore sold his stake in Gunvor to his co-founder, Swedish billionaire Torbjorn Tornqvist, to ensure continued operations.
In current operating environment, PA Resources is cash-flow negative. The firm however maintains that it can significantly reduce operating expenses and has assets in Denmark (central North Sea) and Congo (plus one such field in Tunisia despite other delays and write-downs there) that can be developed further with quite little cost. The business model is to actively develop asset value through exploration, appraisal, planning and development and then divest some assets while take in operational cash flow from producing fields to allow constant continued investments.
In regards to producing fields, PA company President & CEO said in Q4 2014 report, that Block I in Equatorial Guinea and the three small onshore DST fields in Tunisia are cash-flow positive at current oil prices (hovering around 50 USD). The Didon field however is cash-flow negative. That offshore field is 75km offshore Tunisia in in the Gulf of Gabes at water depth of 75 metres. It was already in decline phase but has potential for further discovery. Some 500 boed has been produced from 2 MMboe net producing oil reserves and net contingent resources in Zarat field are over 40 MMboe. Going forward it will be 100% in PA Resource's hands with termination of the farm-out agreement with EnQuest (LSE: ENQ, OMXS: ENQ). The companies entered an agreement in 2013 whereupon EnQuest got a 70% stake. Tunisian authorities slow response provided EnQuest the opportunity to exit the project as the environment changed.
In both 2011 and 2012 PA resources produced an average of about 8000 bpd of oil equivalentss. The number has come down rapidly from there to about on average of 3150 boepd in 2014. The subsidiaries continue to function and the share is still trading in Nasdaq OMX Stockholm, likely providing for some decent trading opportunities as news flow continues.
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