LONDON (ShareCast) - (Sharecast News) - Mosman Oil and Gas updated the market on its operations on Wednesday, reiterating that its business was not immune to the recent "exceptional external events", including the Covid-19 coronavirus pandemic and the fluctuating oil price.
The AIM-traded firm had completed its operational review in March, and on Wednesday confirmed that the cost reductions it announced on 24 March had now been implemented, with production continuing with an emphasis on margins, rather than volumes.

It said growth opportunities, including Stanley and Greater Stanley in Texas, were being retained at minimal cost.

As it announced on 11 May, Mosman signed a farm-out of EPA 155 in central Australia.

EP 145, meanwhile, was currently on hold due to the impact of the pandemic, and an application had been made to suspend activities and extend the licence term.

"Mosman continues to pursue its refocussed corporate strategy and as part of this Mosman is looking at options to sell its Welch Project in Texas, on the condition that a suitable price can be achieved," the board said in its statement.

"Proceeds will be allocated to fund projects with near term growth including Stanley and Greater Stanley."

Production was continuing at Stanley, with current flow rates being around 20% lower than the previous average daily production in the six months ended 31 December.

The operator had advised that in its opinion, it believed the greatest impact would be in the monthly oil price we receive in May.

"In response we have created on-lease temporary oil storage using rented frac tanks, allowing us to continue to produce the wells while mitigating adverse near-term pricing," Mosman quoted the operator as saying.

The tanks would add around 5,000 barrels of storage, and the additional tankage would give the operator the option of exercising some control over the timing of sales, with the objective of obtaining a better sales price, at the cost of deferred cash flow.

"Regarding operating costs, many of the projects that we have completed in the past 12 months, such as improvements to the central processing facilities and reworking and upgrading the salt-water disposal system have materially lowered our operating cost," the operator added.

"We believe our current cost structure will allow us to remain profitable with oil prices in the mid-teens."

Mosman said the funds paid for the proposed Stanley-4 well had now been returned, net of incurred costs including planning and onsite groundwork.

The intention was to drill the well when oil prices have increased to a suitable level, and as such, the timing remained unknown.

At Greater Stanley, it said the plan remained to increase production by workovers on the existing producing wells.

Recent production of around 160 barrels of oil per month gross was sufficient to hold the lease, and technical work suggested there could be potential to produce at higher rates from the Yegua sands.

At the Arkoma project in Oklahoma, production operations were also continuing.

Mosman said volumes had reduced in the quarter ended 31 March, which it put down to its focus on profit margins, given the current price climate, and the deferring of capital expenditure including the installation of power lines for down hole pumps.

The company said it had not contributed additional cash to the Arkoma project in the current year, year and did not anticipate the need to do so.

At the Welch Project, no breakdowns or workovers occurred during April, resulting in steady production.

Daily production for the month was said to be "not significantly different" from the daily average for the six months ended 31 December.

On the corporate front, Mosman said the legal action it initiated to recover funds from Blackstone Oil and Gas was ongoing, but had been stalled by the temporary closure of many branches of local government amid the Covid-19 pandemic.

The board said there was also no update on the shareholding in Norseman Capital, other than that the Norseman board had advised they were reviewing several potential acquisitions to revitalise that company.

"The Mosman board acted quickly and decisively in March and matters remain in accordance with that plan," said chairman John Barr.

"Completing the potential sale of Welch, together with continuing to control costs, are clearly the key objectives in the coming months.

"Despite difficult circumstances, the board remains determined to deliver value to shareholders from its stated strategy."

At 1415 BST, shares in Mosman Oil & Gas were down 23% at 0.12p.

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