Predator Oil & Gas shares sank this week following disappointing results from its onshore Moroccan gas assets, which piles pressure on the company to deliver results in the next testing phase.
Morocco is considered Predator’s foremost project by many, and the formation damage setback during phase 1 of testing was a blow to investors looking forward to production this year. The commencement of phase 1 had already been delayed due to administrative constraints.
Predator Oil & Gas shares are down 42% over the past week.
Near-term success in Morocco has the potential to be a company maker. However, any further delays or setbacks risk eroding the opportunity for long-term shareholder value creation.
In November, Predator said they were in the ‘fortunate’ position to be fully funded to complete works in Trinidad and Morocco after the company raised £7m at 11p by way of an accelerated book build in the middle of last year.
“Given that the Company is well-financed to deliver all of its current near-term firm strategic objectives for its substantially de-risked oil and gas portfolio, any dilution of project equity would need to be a compelling value proposition for shareholders,” the company said in November.
This suggests the funds are readily available for phase 2 of the efforts to establish gas flow in Morocco.
That said, investors should expect delays in any natural resource development programme. In addition, they should be prepared for fluctuating capital requirements.
Executive Chairman Paul Griffiths said this week there was discretionary cash available for the sandjet programme while conceding they need gas to flow as a result of the programme.
The comments would infer there is an awful lot of pressure on the next phase to be successful. There is a sense the company had always seen the phase 2 sandjet programme as the most important phase. Yet, the risks attached to it not being successful were evident this week as PRD shares plunged on phase 1 disappointment.
Predator has not provided details on the potential scenarios if the sandjet programme does not go to plan. It is unclear whether additional funds will be required to pursue another phase in Morocco or extend the sandjet programme beyond that already budgeted.
Last year, Predator alluded to both Trinidad and Morocco being close to production. Trinidad may provide a fallback if Morocco faces further delays and costs spiral. Still, it will be a bitter pill to swallow, especially if additional cash is needed in Morocco before Trinidad starts production.