Metgasco won't give up on Northern Rivers despite US deal
METGASCO is down, but it's certainly not out.
The company, whose share price plunged to record lows after the suspension of its prime exploration licence PEL16, has announced a merger with a junior oil company, the ASX-listed Elk Petroleum.
Metgasco would play the senior partner in the deal, with its shareholders receiving 77% of the new combined entity and the Metgasco name remaining.
The merger is awaiting approval by Elk shareholders but has been unanimously endorsed by both boards.
Elk is an Australian-listed company but its focus is on the US state of Wyoming, where it has a 35% share of an "enhanced oil recovery" project in the Rocky Mountains expected to go into production in 2017.
Elk is the junior partner in the Grieve project with a much bigger US oil player, Denbury Resources.
Enhanced oil recovery is a technique common in the US which involves the injection of carbon dioxide into a stagnant oilfield.
The CO2 bonds with the oil and the combined substance flows to the surface.
The Elk project is aiming to resurrect the production of the Grieve oilfield to its 12,000 barrel-a-day peak by 2019, a level the field has not had since 1960.
Metgasco has promised to provide Elk with a short-term $2.5 million loan.
Managing director Peter Henderson said the deal came at a good time when Metgasco was looking to invest its cash reserves in projects beyond the Northern Rivers.
"We think it's a very good deal for us, we think it's a good deal for the Elk shareholders, and we think everybody has a chance of winning," Mr Henderson said.
But he said the company had no plans to abandon its Northern Rivers aim.
"We are still confident about gas resources in the Northern Rivers region ... it's clearly going to take time for government to get its new gas policy in place," Mr Henderson said.
"We need to do a lot more work in terms of community consultation, but we think the potential is still there and we haven't given up."