North Sea oil firm Noreco admitted last night it was facing financial problems – and was looking to refinance bonds worth £325million.
Reduced revenues from low production volumes and uncertainty over future income have made it difficult for the company to refinance and maintain its existing loans on its producing oil reserves in Denmark and the UK.
The firm has abandoned its plans to drill for oil at the Crazy Horse field in the North Sea, and yesterday said it would be scaling back its exploration activities in the short-term.
It is looking to refinance all of its five existing bond loans totalling of £325million and its existing reserve-based lending facility. The firm is also planning share issues to recapitalise.
Its reserve-based lending facility was reduced to £15.4million this month from £41.1milllion previously, Noreco said.
The company was able to pay down £12.3million of the facility, but due to a cash shortage it was unable to repay the remaining £15.4million and has been granted a week-by-week extension on maturity, subject to the ongoing refinancing.
Several of the largest bondholders and the company’s main shareholders, representing 33% of the shares, have already signalled their support for this solution, which involves refinancing all bond debt and raising new equity.
“When the proposed solution has been approved we will have a good financial basis for continued operation,” said Noreco chief executive officer Svein Arild Killingland.
“We are grateful to our two principal shareholders, who have once again demonstrated their willingness to make a commitment to the company,” Mr. Killingland continues.”
On Crazy Horse, the firm added: “The decision will reduce Noreco’s exploration commitment in the short term, and was necessary in view of the company’s difficult financial position.”
The firm is also having to deal with production problems.
The Huntington oil field is producing at about 40% of capacity due to issues with BP’s CATS pipeline, which comes ashore at Teesside.