A pioneering North Sea firm that won backing from US billionaire Warren Buffett has underlined the scale of the challenges it is facing following the fall in gas prices since last year.

IOG won £165m support from Mr Buffett’s CalEnergy Resources for its plan to develop North Sea finds that had been left idle for years by other firms.

However, 18 months after staring production from two fields, the company told investors yesterday the fall in gas prices from the highs reached last year amid Russia’s war on Ukraine has left it in a difficult financial position.

IOG is in talks with lenders as the deadline for the end of a grace period given by bondholders looms.

“With H2 production seeing natural decline and realised day-ahead gas prices remaining far below last year’s levels, the Company’s financial position remains challenging,” said chief executive Rupert Newall.

“We continue to engage actively with bondholders and their advisors on this under the current waiver to 29 September.”

Shares in IOG plunged around 35 per cent yesterday after the company provided details of the problems it is facing in an operational and corporate update.

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IOG noted it has suffered an apparent snub from the North Sea regulator as it tries to make the most of the portfolio it has developed. The North Sea Transition Authority has told IOG it is not minded to agree to IOG’s request to extend two licences on which the firm is working.

IOG said the decision could impact the commerciality of a find on another licence.

However, the company said it is continuing with pre-development work on other finds which it reckons have potential.

The company’s progress will be followed with interest in the North Sea industry.

Formerly called Independent Oil and Gas, IOG is one of a band of relatively small independents that decided the North Sea contained opportunities that bigger fish had not recognised.

The company’s plan to develop finds that others had not invested in chimed with the regulator’s desire to maximise the recovery of the North Sea’s resources.

It planned to utilise pipeline infrastructure that had fallen into disuse.

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IOG achieved a significant coup when CalEnergy Resources decided to buy into its acreage in 2019. Industry players were grappling with the fallout from the long downturn that started after oil and gas prices slumped in 2014 after growth in production ran ahead of demand.

IOG appeared to have been vindicated when it started production from the Blythe and Elgood fields in March last year in time to benefit from the surge in gas prices fuelled by Russia’s war on Ukraine.

However, conditions deteriorated within months.

In June IOG said prices had fallen by 85 per cent since August last year. The fall reflected the impact of a relatively mild winter, efforts by European countries to reduce reliance on Russian gas and concerns about the outlook for the global economy.

IOG’s efforts to develop the Southwark field have been complicated by operational challenges.

Industry champions have warned that the introduction of the windfall tax on North Sea firms last year has made the sector less attractive to investors.

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Mr Newall took charge after Andrew Hockey stood down as chief executive in October last year after nearly five years in charge.

In August IOG obtained approval from bondholders for some terms applying to $100m borrowing to be waived.

Shares in IOG closed down 0.61p, at 1.08p, leaving the firm with a market capitalisation of around £5.7m.

The shares sold for 27p in September last year.