Fremont cuts costs, asks for cash, hopes investor patience continues
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Fremont Petroleum has cut cash director fees and slashed employee costs by half as it works to stay afloat.
The company (ASX:FPL), which hasn’t made a profit since starting in 2006, said on Tuesday its current production was 70 to 80 barrels of oil per day (b/d).
Sold at $US50 a barrel, they’re making about $70,000 a month. December quarter spending was expected to be $840,000.
Fremont has cut staff costs from $US77,000 per month to $US35,000, however, and directors are taking their $2000 fees in company stock.
The board also resolved last week to undertake a capital raising and was “working with its advisors on a suitable structure given the company’s funding circumstances”.
It was enough to send the share price up by 7.7 per cent to 0.7c.
Fremont banked $168,000 in sales last quarter but finished up burning $1.1 million in operating cashflow. After raising $2.1 million, about $595,000 was left in the kitty — ahead of $840,000 in expected spending this quarter.
That prompted an ASX query. Fremont then said it would save $500,000 by cancelling drilling any new wells this quarter.
It’s all in aid of progressing the company’s flagship Pathfinder project in Colorado, for which it says greater production is just around the corner.
However, this is a story the company has been telling almost since acquiring a licence over the Niobrara formation in 2011.
Six years of promises
In 2011, Fremont, then called Austin Exploration, refocused on American oil over Aussie gas, taking advantage of the strong Australian dollar to buy into the prolific Eagle Ford Shale prospect in Texas and the Niobrara Shale Project in Colorado.
Strong cost management saw the full year loss cut by $3 million to $1.1 million.
In 2012 the board, which included a new chairman and COO, moved the whole business to the US and the following year began to report positive signs of oil and gas in Colorado.
2014 was to be the year it all came together.
The company built a gas processing plant at the Pathfinder project to sell heavy gases to Gas Processing of America, and revealed that the Eagle Ford wells needed investment of $3 million a piece.
It’s not clear whether the gas sales deal ever came to fruition.
A $US40 million debt deal was arranged — then pushed aside after a well in Texas finally made the business briefly cash flow positive. Visions of paying their own way to production, as originally planned in 2011, ensued.
That year oil prices plummeted from $US107.
In 2015 the wheels began to fall off the apple cart.
The company sold off its Texas and Mississippi assets, where it wasn’t the operator and couldn’t control costs. The full year loss spun out to $44 million on exploration write downs and $16 million in well impairments.
By 2016 they were still preparing the Colorado Pathfinder project to “unlock a tremendous amount of value”.
Fremont had consistently said Pathfinder lay next to an area in the county that had historically produced “more than 15 million barrels of oil”.
So far it was producing from one well and had a total proved, developed and producing reserve of 5060 barrels of oil. It did not say how much it was getting from Colorado.
Still looking for the whale
In 2017 the company is still unlocking the potential of the Pathfinder project.
It changed its name in April “to reflect the asset base”, and is selling the Kentucky assets, leaving it to focus solely on its 1.6 million barrel oil reserve in Colorado.
Of its total daily production, somewhere between 50-65 barrels a day now come from 22 wells in the Colorado project, according to the latest annual report.
It is negotiating gas sales agreements that it says should be finalised within three months, with first gas sales from June.
Fremont is now also planning to tap shareholders again to keep things ticking over until those gas deals come in, and until that oil really starts pumping.
Fremont is one company that managed to come through the oil price crisis relatively intact.
It remains to be seen whether investors are patient enough to stick with the plan.