More Problems for Max with Kazakh Drill
Max Petroleum reported Friday that it has experienced more problems with its NUR-1 well on the Emba-B pre-salt prospect, offshore Kazakhstan.
Max said that it now does not expect to reach total depth of 23,785 feet (7,250 meters) before August.
The well was originally expected to have been completed by May, but it already hit a snag in early April when its tools became stuck after the well had reached a depth of 18,760 feet. A drill string had become stuck in the top of the salt.
The current delays relate back to this episode. After side-tracking the well, the company drilled ahead but progress was slow as it drilled alongside the stuck drilling tools. After clearing the old well-bore, the well reached the Kungarian Salt on June 19, but due to encountering anomalously high pressures, the drill pipe has become stuck again at 18,775 feet (5,722 meters), Max said.
Operations are now ongoing to increase the mud density further, free the stuck pipe by dissolving the salt with fresh water and continue drilling through the salt to the next casing point at 19,360 feet (5,900 meters).
Max also said that, even assuming near-term success in freeing the stuck pipe and normal operations going forward, the total costs for NUR-1 are now expected to be approximately $43 million, with expected forward costs of approximately $10 million.
As a consequence, the firm now faces financing issues since the outstanding debt on its senior credit facility is $54.2 million out of a total borrowing capacity of $58 million through to June 30, 2012. Max said that it is working with its senior lender, Macquarie Bank, and has begun discussions with a number of providers of debt and equity financing.
However, current market conditions, along with regulatory changes in Kazakhstan that prevent Max from completing a conventional equity offering, have affected progress in raising funds.
Investors in the firm were not impressed, and Max's shares on London's Alternative Investment Market took a severe hit when the market opened on Friday morning; the share price was down by more than 70 percent at one point.
Oil analysts at London-based investment bank Merchant Securities commented that Max now faces an increased risk for the NUR-1 well, a heightened financial risk and reduced availability of capital for development funding, as well as lower crude oil prices.
"The financial leverage of the company will magnify its operational challenges," said Merchant's Brendan Long in a research note on Max.
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