United given $3.8m default notice for Abu Sennan

United Oil & Gas plc has received a default notice for US$3,822,143 outstanding cash calls for the Abu Sennan licence in which it has tried to sell its 22% interest.

DISCUSSIONS

The company has 30 days, beginning 28 January, to address the November 2023 notice from operator Kuwait Energy Egypt Ltd in accordance with the joint operating agreement (JOA) or risk having to withdraw from Abu Sennan.

The company also said today it had been in “advanced discussions” on the potential sale of its stake in Abu Sennan to United Energy Egypt Limited (UEEL), prompted by challenging macro-economic conditions in Egypt and difficulties in repatriating funds as previously reported.

UEEL is a sister company of operator Kuwait Energy and both share the same parent, United Energy Group (UEG)*. 

United added that talks on selling its Abu Sennan interest aborted as it unable to agree on UEEL’s draft sale and purchase agreement (SPA).

“The effective date for the SPA was 1 November 2023, when the consideration was $2.052 million which would have settled all outstanding cash calls as at that date, and the operator would pay all future cash calls and receive all future revenues.

“The increased figure for the default notice is due to the cash calls received for work undertaken on the concession in the interim period.”

United’s commercial position remains unchanged between a default scenario and the commercial terms of the SPA, if completed, because the proposed cash from a sale would be used to settle the cash calls.

Either scenario would involve the sale of the Abu Sennan concession.

The company also wants to refocus on “other assets” after deciding that the main value had been extracted from Abu Sennan, as reflected in the 2024 proposed budget indicating a net deficit of $3m.

EXCHANGE RATES

Before September 2023, United received payments from the Egyptian National Oil Company (EGPC) in both US dollars and Egyptian pounds, with the latter used for operational liabilities.

Since September 2023, approximately 13% of payments have been in US dollars, with the rest in Egyptian pounds, resulting in “considerable” foreign exchange losses when converting Egyptian pounds to US dollars.

United has a receivables balance of $800,000 outstanding from EGPC and approximately $1.3m cash.

United has sought a US dollar remittance from EPGC against the company’s outstanding US dollar receivable position and also tried to settle the operator’s cash calls in Egyptian pounds.

United is currently reviewing the default notice with its legal advisers while continuing to seek other solutions.     

The company is also in discussions with its debt provider, currently owed $1.089m.

“We are very disappointed that we could not reach agreement with United Energy Egypt Limited to sell the Abu Sennan concession,” added chief executive Brian Larkin.

“We had worked tirelessly from early December and over the holiday period to finalise the sale and purchase agreement and engaged external lawyers to assist through the whole process at a significant cost.

“We had agreed the commercial terms, however, based on external legal advice, we were unable to sign the SPA in the form that United Energy Egypt Limited presented to us.

“However, we believe the differences could have been easily resolved and this commercial issue avoided.”

*UEG, listed on the Hong Kong stock exchange, has its headquarters in Hong Kong with subsidiaries in China, UAE, Pakistan, Iraq and Egypt and more than 1,900 employees.