Another Setback for Metgasco as Elk Petroleum Merger Collapses

Troubled Australian coal seam gas explorer Metgasco faced another setback as it announced on Monday termination of its merger with Elk Petroleum.

“Based on discussions with numerous financial organisations, Metgasco has concluded that the chance of securing acceptable finance is now very low.  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 said in a note.

Metgasco added that under the terms of the Convertible Loan Facility, which was put in place to support Elk Petroleum through the merger implementation period, no further payments to Elk Petroleum will be made and Elk Petroleum has 30 days in which to repay the loan plus interest incurred. 

The merger was an attempt by Metgasco to diversify its activity outside New South Wales. The merger would have provided access to a geographically diversified portfolio of exploration and advanced development assets, with exposure to coal seam and conventional gas in New South Wales, Australia; and oil-producing Rocky Mountain region of the United States of America. 

Last month Metgasco reported a A$2.1 million operating loss for the half year ended December 31, 2014 as it fights New South Wales government’s decision to suspend drilling license in Bentley.

In May last year, the NSW Government's Office of Coal Seam Gas suspended Metgasco's permit to test drill a tight sands gas well on a Bentley property in May. The Government said that he decision was taken on the basis that Metgasco had not met its obligations to consult with the community.

The company is still waiting on a decision regarding the suspension of drilling approval.