Anglo African Oil & Gas (LSE:AAOG) dropped 4.3pc to 7.6p this morning after announcing the temporary suspension of drilling at its key well on the Tilapia field in the Republic of the Congo.
The company, which now sits below its 8p placing price in June, said it found that two parts of the rig being used to drill well TLP-103C are worn. As these parts will be critical to drilling deeper sections, the business has requested that drilling is halted until replacement parts have arrived in nearby city Pointe Noire.
Anglo African emphasised that the rig has not suffered any mechanical issue, adding that it made its move to avoid the risk of damaging TLP-103C’s target horizons. It also said that – ‘contrary to speculation’ – drilling is proceeding well and results have been in line with its geological model so far.
The firm will begin drilling again as soon as the new parts are installed and CEO James Berwick is scheduled to meet with contractor SMP next week to discuss the financial consequences of the downtime. David Sefton, executive chairman, said:
‘The company will not risk damage to the target horizons, and so has insisted on these replacement parts. The delay is temporary and the issue is entirely related to the rig and the drilling contractor. Up until this point, the geology encountered by TLP 103C has been in line with the pre-drill geological model. There have been no problems encountered with the Well. Operations will recommence as soon as possible.’
Today’s suspension is the not the first disruption Anglo African has faced in its drilling of Tilapia. In September, the business abandoned its original well – TLP-103 – after its contractor said it had experienced a ‘topside issue affecting its rig’ before reaching any of its target horizons. The pair jointly decided to find a new location, move the rig, and re-spud the well as TLP-103C.
To cover the additional costs associated with the delay, the firm announced last month that it had entered into a £5m convertible loan note financing facility with Sandabel Capital. Anglo African can draw down the value of the £5m facility in multiples of £50,000 at any time over the next 12 months by issuing convertible unsecured loan notes to Sandabel. These notes, which will be delivered at 90pc of their par value, must be redeemed within a year of their issue date. If Anglo African does not redeem any of these notes, then Sandabel will be able to convert them into shares in the business. It can convert at 125pc of Anglo African’s initial spot price or its market share price, depending on which is lower.
Author: Daniel Flynn
The author does not own shares in the company mentioned in this article