Max Petroleum Plc, an oil and gas exploration and production company focused on Kazakhstan, announces an operational and financial update.
The Company has experienced further delays drilling its NUR-1 well and as a result does not expect to reach total depth of 7,250 metres before August 2012. The delays largely result from the drill string becoming stuck in the top of salt in April 2012 at a depth of 5,718 metres. After side-tracking the well and setting casing at 5,681 metres, the Company drilled ahead. However, progress was slow as the Company drilled alongside the stuck drilling tools. After clearing the old wellbore, the well reached the Kungarian Salt on 19 June 2012. Due to encountering anomalously high pressures, the drill pipe has become stuck again at 5,722 metres, despite using the higher density mud specified for penetrating this section. Operations are now ongoing to increase the mud density further, free the stuck pipe by dissolving the salt with fresh water, and continue drilling through the salt to the next casing point at 5,900 metres.
Assuming near-term success in freeing the stuck pipe and normal operations going forward, the total costs for the NUR-1 well are now expected to be approximately US$43 million, with expected forward cost of approximately US$10 million. The Company will announce when it has resumed drilling ahead through the salt and, subsequently, after setting its next string of casing below the salt above the prospective pre-salt section.
In order to allow completion of its exploration drilling programme ahead of the expiry of the exploration phase of its Blocks A&E Licence in March 2013, the Company is working with its senior lender, Macquarie Bank Limited, and has initiated discussions with a number of providers of debt and equity financing, regarding the provision of additional capital. These discussions to date have been impacted by market conditions, as well as recent regulatory changes in Kazakhstan that currently prevent the Company from completing a conventional equity offering. The current outstanding balance on the Senior Credit Facility is US$54.2 million out of a total borrowing capacity of US$58 million through to 30 June 2012. The Company and Macquarie Bank Limited will review the borrowing threshold as part of their semi-annual budget review under the Credit Facility, as well as monthly amortization payments beginning in July 2012. In the absence of additional funding the Company may have to significantly curtail its intended exploration activities.