Max Petroleum share price collapses as funding issues loom

Kazakhstan focused oil producer Max Petroleum is currently down 53% to 4.1p after falling as low as 2.5p earlier today on news that it may have to significantly reduce or even abandon its exploration programme if it does not get additional funding. Back in March it was over 14p and the company is now currently valued at around £42 million.

The company said drilling at its NUR-1 E Block exploration well, which was spudded in November last year, would be delayed due to technical problems, with “anomalously high pressure” leaving the drill pipe stuck at 5,772 metres. This means the company does not expect to reach the total depth of 7,250 metres before August 2012 compared with expected completion during this month. The well is targeting 467 mmboe of unrisked mean resource.

The company has used $54.2 million on its debt facility out of a total $58 million through to the end of the month. Max also said the well will cost $43 million, with expected forward costs of about $10 million, assuming it can resume drilling in the near term. It is in discussion with lenders to allow completion of drilling before the the exploration phase of its Blocks A & E licence expire in March 2013.

Max Petroleum acquired the exploration and production rights to the Blocks A&E Licence area in 2005, which includes two onshore blocks extending over 12,455 km2 in the Pre-Caspian Basin in Western Kazakhstan. The Pre-Caspian Basin has produced some of the world’s largest oil and gas discoveries, including the super-giant Tengiz, Kashagan, Karachaganak and Astrakhan fields, which range in size from seven to 20 billion barrels of oil equivalent in recoverable reserves. The Basin also has extensive production from numerous shallow, “post-salt” fields, with more than 100 post-salt fields discovered during the Soviet era, with an average mean field size of 34 million barrels of recoverable oil each.

In July 2010, the Group’s competent person, Ryder Scott Company LP, estimated Blocks A&E’s mean risked resource potential at 1,100 mmboe.

Max is a high risk, high reward frontier exploration company and unfortunately tight financial markets and technical problems have caught it on the hop. The problems that Max are facing are not unusual in the current environment where drilling is happening on a “hand to mouth” basis as institutional investors are reluctant to commit large sums upfront and private investors are forced to take the strain.

Another painful day for AIM oil and gas investors!

Contrarian Investor UK