NORTH Sea-focused Iona Energy has slashed the valuation of a field again but expects to make big cost savings developing another one reflecting how the plunge in the crude price is impacting on firms in the area.
Iona said it had cut the valuation of its stake in the Huntington field by another $13.4 million (£8.6m) in a move it said was driven by a reduction in the company’s oil price expectations.
The statement highlights the challenges facing the industry in the UK North Sea, where firms have made deep cuts in the valuations of their portfolios and shed around 5,500 jobs amid the downturn that began last year.
Iona lost $120m in 2014, when it provided $89m against the value of Huntington to reflect the crude price drop.
Brent crude traded at around $43 per barrel yesterday compared with $115 in June last year. With prices set to remain under pressure for some time amid strong supplies and weak demand, there is concern about the possibility of a prolonged slump in investment in new fields.
However, Iona’s experience also provides evidence the crude price fall could provide a spur to some activity.
Iona said it now expects to be able to develop the Orlando field for $192m, compared with $215m previously.
The cost of services such as drilling has fallen as providers fight for a share of shrinking market.
“Iona has been able to take advantage of the favourable contracting environment for 2016 oilfield
services and secured material further cost savings to the Orlando project,” said the company.
It said Orlando remains on track for first production in the fourth quarter of 2016.
Led by chief executive Tom Reynolds, Iona has made progress towards overcoming the kind of funding challenge that experts reckon may be common in an area where some firms have to service hefty debts taken on during the boom years.
Earlier this month the company won backing from bondholders for a restructuring involving a $120m debt for equity swap.
Iona noted yesterday that the restructuring will involve a global energy company acquiring a 25 per cent stake in Orlando for up to $36.3m. The unnamed firm will farm in to the Ronan and Oran prospects.
The restructuring is due to complete by 30 September.
In December, before agreeing the restructuring, Iona had warned it may end up in breach of covenants applying to $275m bonds in the ensuing 12 months, following the decline in the oil price. It also cited interruptions to production from Huntington mainly linked to the availability of gas export infrastructure and a delay in projected first oil from Orlando from 2015 to 2016.
Yesterday Iona said Huntington production has remained robust in recent weeks following commercial amendments to the transportation agreements.
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