LGO Energy claims progress in investment talks

Shares in LGO Energy surged as investors excitement over a potential $20m new investment offset worries about defaulted debts.

The AIM-listed oil explorer, which was hit by a cash crunch after a drilling mishap in September and put itself up for sale in December, said it had signed a non-binding agreement with "an institution" in the USA for a $20m investment, while continuing talks with this party and others potential investors.

Such an investment might enable LGO to re-start its $9m campaign drill 20 new wells in Trinidad's Goudron Field, however the company has several other more pressing calls for any potential cash.

LGO has confirmed that, after the autumn's drilling accident at Goudron resulted in $4m of capital costs and sent the operating subsidiary into default, debts to BNP Paribas remain "in default and on demand".

The £8m market cap company, which in the fourth quarter of the year produced an average of 489 barrels of oil per day from the Goudron Field and averaged 154 bopd from operations in Spain, said BNP has retained funds of $4m drawn down by LGO's wholly owned Goudron E&P Ltd for the purposes of paying local contractors against a total balance due to the bank of roughly $10.4m.

Local creditors currently amount to about $6.5m, of which LGO has agreed to pay several creditors approximately US$1.5m in shares, which have yet to be issued.

In November, LGO struck a deal with BNP for an early termination of old pre-paid swap agreements at a value of $10.8m, with LGO repaying at a reduced rate of $75,000 per month for December, January and February, with the remaining outstanding balance due to be repaid over the following 19 months at a rate of approximately 5% per month.

"Despite the significant and prolonged downturn in the sector generally, the interest in investing in LGO reflects the quality of the underlying portfolio and the low cost production potential of the Company's assets especially in Trinidad," said chief executive Neil Ritson.

"We are continuing to work with all stakeholders to ensure the optimum outcome can be achieved."

Topping 0.36p at one point, LGO shares were up by almost 30% to 0.278p by 1100 GMT,which is around 90% lower than the 3p level they crossed around a year ago.