GAS company Metgasco is back to relying on its Northern Rivers exploration licence for any future income after announcing it had ditched a planned merger with US company Elk Petroleum.
The termination of the merger follows Metgasco handing over $1.69m of a $2.5m loan to Elk. Under the deal between the companies, the US company now has 30 days to repay that money.
Metgasco announced the Elk deal with some fanfare in December, saying it would deliver more than three-quarters of Elk's shares to the Australian company, giving it the lions share of Elk's 35% stake in the Grieve oil field in the US, which had been expected to enter production in 2017.
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In a statement to the Australian Stock Exchange, Metgasco announced it had scrapped the Elk deal based on a "Material Adverse Condition" clause in the deal.
"Based on discussions with numerous financial organisations, Metgasco has concluded that the chance of securing acceptable finance is now very low," the statement reads.
"This is due to a number of factors, including current oil prices, which are significantly lower than anticipated when the original merger terms were negotiated.
"As such, Metgasco's Board of Directors, has decided to exercise Metgasco's rights and terminate the Merger Implementation Deed."
The company says the money handed to Elk so far, which was to help the US company with "immediate funding requirements" was secured against Elk and all its assets.
Apart from its share in the Grieve oil field in Wyoming, Elk also owns the pipeline between Grieve and the nearby city of Casper, and a 100% stake in the Singleton oil field in Nebraska, which it bought last year and which it intended to develop once it started getting a cash flow from the Grieve field.
Immediately following the Metgasco announcement, Elk Petroleum asked the Australian Stock Exchange to put a trading halt on its shares.
Metgasco says it will now continue trying to develop its licence in the Clarence Moreton basin.
"Metgasco is disappointed that this opportunity has not been successful and will continue seeking means to
realise value from its Clarence Moreton Basin exploration acreage and identifying opportunities outside of
NSW," Metgasco says in its statement.