Noreco Drops as Share Sale Worries Outweigh Oil Find: Oslo Mover

Norwegian Energy Co. ASA fell the most in a year in Oslo as irregular oil output and costs related to its Danish assets heightened concerns that the producer may have to raise capital.

Noreco dropped as much as 19 percent, the biggest intraday decline since Oct. 1, 2012. The shares fell 16 percent to 2.10 kroner at 12:12 p.m. in the capital with trading volume at more than three times the three-month daily average. That drop extended Noreco’s decline to 45 percent since the start of the year.

Noreco has reported positive drilling results at Gohta in the Barents Sea, where the Stavanger, Norway-based company has a 20 percent stake. Still, weak third-quarter production, an unexpected 500 million kroner ($90.7 million) charge in Denmark and the rising prospect of a share sale are of more concern to investors, Swedbank First Securities analyst Teodor Sveen Nilsen said in an e-mail.

Those issues “more than wipe out the positive news related to the Gohta discovery,” he said. “We do not rule out that an equity issue will be needed.”

Noreco, which is seeking to increase output after delays at its Huntington field in the U.K.’s North Sea, has experienced a slew of shutdowns at its Oselvar field off Norway and Nini, Nini East and Cecilie in the Danish North Sea. Shares in the company sank to a record on Aug. 29 amid concerns that intermittent output from Huntington and its Danish assets is stretching its balance sheet and may result in Noreco needing to sell shares.

Abandonment Costs

The company produced an average of 3,117 barrels of oil equivalent a day during the third quarter, down from 4,561 barrels a day in the previous three months, Noreco said in a statement today. While Huntington output may increase during this month, there’s a risk that production from Nini, Nini East and Cecilie may not resume until after the northern hemisphere’s winter season, it said.

Noreco has also held talks with partners in its Danish assets about abandonment costs that should be prepared for the Nini, Nini East and Cecilie fields by Jan. 1. “Noreco’s part of these costs is estimated at approximately 500 million kroner,” it said. “Discussions are on-going about form, initial amount and build-up of such guarantees.”

“Noreco will need a guarantee for this amount in some form (for instance a bank guarantee), and this will go into the refinancing discussions,” Pareto Securities ASA said in a note. “This added element should remove any doubt that the company needs to have a refinancing in place before the end of this year.”

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