Banks pull plug on Oilexco's UK operations

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    By Ed Crooks, Energy Editor – Yahoo Finance

    The UK arm of Oilexco (OIL.TOnews) is likely to go into administration within the next day or two, taking all the London and Toronto-listed exploration and production company’s oil and gas reserves with it.

    The collapse will be the first significant failure of a UK oil company following the plunge in the price of crude and the drying-up of debt and equity financing since the downfall of Lehman Brothers (NYSE: LEHnews) in September.

    Oilexco was the most active driller of appraisal wells in the North Sea in recent years, outdoing big international groups such as BP (LSE: BP.Lnews) and Royal Dutch Shell (Amsterdam: RDSA.ASnews) .

    Although it has been looming since October, the failure to secure the funding it needed will send shock waves through the North Sea industry.

    On New Year’s eve, the company issued a statement warning that its UK subsidiary, Oilexco North Sea Limited, intended to file for administration “as soon as reasonably practicable”.

    It said Royal Bank of Scotland (LSE: RBS.Lnews) and its syndicate of banks had told Oilexco that day that they were “not prepared to advance any further funding” to its UK arm.

    It added: “Oilexco does not have any other source of funding at this time and has therefore concluded that an administration must be pursued.”

    Merrill Lynch (NYSE: MERnews) and Morgan Stanley (NYSE: MSnews) have been trying to find buyers for Oilexco or its assets and the company said “several parties have indicated significant interest” in buying all or most of the North Sea business.

    The administrators are now expected to carry on that process, in the hope of maximising the value for stakeholders and keeping the business as a going concern.

    Oilexco’s assets include the Huntington field, potentially the biggest oil find in the North Sea for five years. However, oil at about $46 a barrel, as it was on Monday, threatens to make North Sea investment unviable, because producing new oil costs about $40 a barrel.

    The shares closed up 1¼p in London at 18¼p, but are down 98 per cent over the past six months.

    Valued at more than £2bn last June, Oilexco is now worth just £41m.

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