Molecular Energies makes progress as it looks to 'right-size'

The AIM-traded firm said its Argentine auditor-reviewed results for the fourth were due to be released by mid-March, and were expected to show “continued operational profitability”, at which stage an operational review would be released for the full 2022 period.

In Rio Negro, it said a programme of well interventions was due to start in the next two months to boost production.

At Salta, meanwhile, a “like programme” was getting underway, as well as opening up a number of old shut-in wells to identify any residual oil left where possible artificial lift could sweep hydrocarbons to the surface due to insufficient energy in the wells to produce oil to surface naturally.

“In both areas, further sub-surface analysis is currently ongoing with potential new drilling prospects highlighted which will be matured in the first half of 2023,” the board said in its statement.

“The drilling of a high impact gas exploration well at the Martinez del Tineo field in Salta is on the programme for the second half, which will also target proven oil reserves in that field.

“An appropriate drilling rig has been identified and, to maximise economies of scale with regard to future drilling in Salta, advanced negotiations are in progress with regard to the drilling rig being based at the Puesto Guardian Concession on a medium to long-term basis from mid-2023.”

Molecular Energies said steps were being taken to further reduce operational expenditure in both operational areas, including the investigation of replacing diesel power generation with own-generated solar, which would be further developed this year subject to a “promising” preliminary feasibility study being confirmed.

President Argentina had meanwhile successfully converted its corporate bonds, due to mature in 2023, to a new issue of bonds totalling $10.8m at an interest rate of 4% per annum, with a final maturity date now extending over 36 months to December 2025.

“These bonds have been awarded investment grade credit rating of A- by Fix SCR, the Argentine affiliate of the international credit agency Fitch.”

Looking at Paraguay, Molecular Energies said it had been informed that the designated drilling contractor expected to complete procurement of the drilling rig in the middle of next week, with the drilling contract being signed in anticipation, subject to the completion of formalities.

“The necessary repairs and inspections referred to in the company announcement on 7 December are expected to commence next week, with the objective of the spudding of the well by the end of the first quarter.

“The company will advise the market as to progress at the end of January.”

Finally, in Louisiana, the firm said both the Triche and Simmons wells were producing, with gross aggregate December sales delivered to the refinery of 4,300 barrels of oil.

Production in January had started “materially slower” than in December, however, and was expected to continue at lower levels with further natural declines due to the characteristics of the newly-perforated reservoir now becoming evident.

“It is therefore inappropriate, whilst still profitable, that such a small-scale production asset remains in the group.

“Contingent liabilities relating to the future plug and abandonment of wells and facilities will nevertheless have a cash-flow negative effect in the fullness of time.

“Accordingly, this asset, together with the contingent liabilities, is intended to be dispensed with in the first quarter so that Molecular Energies can concentrate its resources and direction in other areas.”

Elsewhere, the company said its alternative energies division, Green House Capital (GHC), was pursuing an “increasing number” of opportunities in the sphere of alternative energies.

In lithium, it said that further to its announcement on 25 July, discussions were ongoing with the Argentina state-owned company for managing the energy and mining resources of the Salta province.

At the same time, GHC was considering other areas in connection with lithium, with the board saying that notwithstanding the ongoing work, it was expected to be a “relatively slow burner”.

In dual fuel, Molecular Energies said it regarded the active opportunity as “very prospective and synergetic” with that of Atome Energy, in which it currently had a 25.2% shareholding.

“Shareholders can expect further announcements in this regard during the first half.”

Molecular Energies said it was currently pursuing a number of other opportunities under GHC, and expected to be able to advise the market “positively” also during the first half.

“The objective is to mix near term income generative business with those with excellent prospects but on a longer lead time.”

On the strategic front, the firm said it was taking “decisive actions” to “reposition and transition”, while not neglecting its hydrocarbon business.

“The forthcoming intended disposal of non-core Louisiana assets is indicative of this and will be the first of other housekeeping actions to be taken during the course of this year.

“In the first quarter, Molecular Energies will be taking steps to meaningfully reduce and right-size both the interest burden on the company as well as capital monies due under of the shareholder loan provided by IYA, a company beneficially owned by [our] largest shareholder and chairman, Peter Levine.

“IYA has indicated that it is both sympathetic and supportive of the desirability to significantly reduce the interest and debt at the parent company level in the interests of the company as a whole and its future expansion.”

Discussions were underway between the company and IYA, with a view to such reduction while retaining the benefit of an “underpinned, robust, and time-extended” line of credit from IYA in favour of the firm, supporting working capital for the repositioned group.

“Whilst no guarantee as to the outcome can be given, the parties are working towards finalising these discussions with a view to implementing a strategy beneficial to the company before the end of the first quarter, and expect to be able to inform shareholders of the plans during that time frame.”

At 1019 GMT, shares in Molecular Energies were down 3.86% at 137p.

Reporting by Josh White for Sharecast.com.