The share price of Modiin Energy LP (TASE:MDIN.L) continued its free-fall today, as the company's financial troubles prevent it from carrying out its oil and gas exploration plan. The company may seek to raise more capital soon.
Modiin Energy's controlling shareholders Tzahi Sultan and Nochi Dankner are foregoing part of the company's royalties. The company notified the TASE today that it will reduce the royalties and operating fees paid to its general partner as of January 1, 2013. Royalties will be cut from 6% up to the refund of expenses to 4.95%, and from 13% after the refund of expenses to 9.95%. Operating fees will be cut from 7.5% to 4.95%.
Modiin Energy CEO Ron Maor said, "As part of the restructuring of the partnership's plans and the focus on the Gabriella license and preparations to drill there, the partnership has initiated the process of raising capital. As part of this, and since the partnership's general partner is affiliated with the investors, the general partner today announced a reduction in royalties and operating fees to a level that will be the lowest in the industry."
Modiin Energy is cutting the royalties following the collapse in its share price. The company's financing problems are preventing the planning drilling in the Yam Hadera license, and prompted the report of the planned fundraising. Modiin Energy's share price fell 36% last week.
In May 2010, Modiin Energy's market cap peaked at over NIS 1 billion, but following the dry holes at the Myra and Sarah wells earlier this year, its market cap has fallen 86% to just NIS 115 million. The plunge reduced the value of Sultan's holding in the company to just NIS 2.3 million, and he faces a loss on his direct investments in the company's offerings.
Modiin Energy wholly owns the Yam Hadera license, located 30 kilometers offshore from Hadera. Netherland Sewell & Associates Ltd. (NSAI) gives the reservoir a best estimate of 133 million barrels of oil with a geological chance of success of 25-29%, and 1.4 trillion cubic feet of natural gas, with a geological chance of success of 17-29%.
Modiin Energy owns 29.2% of the Myra and Sarah licenses. The cost of the two wells at the licenses was $155 million. The damage to the company from the two dry holes was even greater than it share in the licenses, because before the wells were drilled, it acquired 7.5% of the rights in the licenses from its partner, Israel Land Development Company Energy Ltd. (TASE: IE), controlled by Ofer Nimrodi, for $30 million, at a valuation of $400 million. The acquisition cost Modiin Energy an additional NIS 150 million - money which it could otherwise have used to finance the wells that it now plans to drill.
Modiin Energy had $41 million in cash reserves at the end of September, but it subsequently spent more money on the Sarah well, without results.
Modiin Energy also owns 70% of the Gabriella license, with Canada's Adira Energy Corporation (TSXV: ADL; Bulletin Board: ADENF; XETRA: AORLB8), and Brownstone Energy Inc. (TSX: BWN; Bulletin Board: BWSOF) each owning 15%. Modiin Energy promised the rig operator a $20 million letter of credit by Thursday and a second letter of credit of $13.2 million by the end of January. The 392-square kilometer offshore Gabriella license is located in shallow water 10 kilometers northwest of Tel Aviv. NSAI gives the reservoir a best estimate of 110 million barrels of oil. The high estimate is 264 million barrels and the low estimate is 30 million barrels. Its contingent resources are based on the Yam Jaffa 1 well by Isramco Ltd. (Nasdaq: ISRL; TASE: ISRA.L) 20 years ago, which produced 500 barrels of oil a day.
Since Modiin Energy has no money to finance its share of the drilling, it announced that it will immediately have to raise capital and that it is seeking new partners, which will reduce the rights of the current partners in the license. The company did not disclose whether Sultan or Dankner's IDB Development Corp. Ltd. will participate in the offering, as they did in previous offerings.
Published by Globes [online], Israel business news - www.globes-online.com - on December 24, 2012
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