Prospex Oil & Gas (LSE:PXOG) soared by 31pc this morning to 0.3p after raising £480,000 through the issue of unsecured loan notes. Alongside additional non-equity funding, the business said it believes the loan notes will cover the full development of the Selva gas discovery on its 17pc-owned Podere Gallina permit in Italy. The firm expects to deliver first production of up to 5.3MMscf/d at Selva in the first half of 2020 at a development cost of net €408,000.
The company issued the loan notes to eleven individual subscribers including three of its directors – Bill Smith, Richard Mays, and James Smith – who subscribed for £50,000 worth each. The subscribers were also issued55 warrants for each £1 of loan note, which they can convert into one ordinary share at 0.6p each. Assuming full exercise of the warrants, the business would issue 26.4m shares for a total subscription of £158,400.
The loan notes will pay 10pc interest biannually, with first cash payment on 31 December next year. Prospex must repay the notes in four equal payments from December 2020 to June 2022. Interestingly, between September 2019 and August 2020, Prospect has said that loan note holders can convert into shares issued in an equity financing of £1.5m or less at a 10pc discount. Also, these holders can redeem their notes on any future placing of £2.5m or more before 31 August 2020.
Prospex said the debt financing has been made possible by the news last month that it had achieved first gas production at its EIV-1 Suceava Concession in onshore Romania. It added that cash flow from Romania and expected cash flow from Italy will significantly scale up its revenue profile.
The business is also hoping to monetise the potential of its 2.5pc stake in Southern Spain’s Tesorillo Project, which it bought for just €48,650 last December with an option to eventually purchase as much as 49pc. The Tesorillo licence area has been assigneda considerable 830Bcf of audited gross un-risked prospective resources and 2Tcf of potential upside.
Non-executive chairman Bill Smith added: ‘The market may not have fully recognised the significance to the Company of first gas production in Romania and ongoing work to advance the Selva gas field in Italy towards development, but the Subscribers to the Loan Notes have done. Not only is Prospex generating revenues for the first time, but the presence of copycat prospects at Suceava and large structures at Podere Gallina offer multiple low-cost, low-risk opportunities to rapidly scale up production and revenues.
‘We firmly believe a huge disconnect has opened up between the underlying value of our projects and our current market valuation. We expect this valuation gap to close as the various workstreams that are underway to monetise our investments are advancedto the point where their considerable potential is visible to all. Until this value gap closes, however, we intend to take full advantage of the non-equity funding opportunities we now have at our disposal.”
Author: Daniel Flynn
Disclosure: The author does not hold positions in any of the stocks mentioned above