North Sea oil firm Independent Oil & Gas (IOG:AIM) surges 34.2% to 7.55p in a relief rally as it secures funding for its key Skipper well.

If Independent can drill the well as planned it would be testament to a spirit of co-operation in the industry with many of the service providers used for this project deferring payment or taking a portion in equity.

Independent has seen its shares collapse as it struggled to fund itself in a depressed industry environment.

CE Oil & Gas, part of London Group, has now agreed a loan of £4.75 million with warrants.

Independent still needs to be recognised as operator of the licence area and be granted an extension on the licence but with funds in place the company is hopeful the appraisal well will be drilled in late January or early February 2016.

Management estimate Skipper contains 34.1 million barrels of oil equivalent in recoverable oil and puts the breakeven Brent oil price for the project at just $34 per barrel.

An agreement with a major service contractor has now been executed with significant deferral on payment and contract negotiations on the Skipper rig are expected to be concluded shortly.

IOG has also agreed a well management contract with AGR that will see fees paid in cash and shares.

Weatherford Technical Services has also extended the maturity date for its outstanding loan of approximately $2 million until 30 December.

A successful result from the well could kick start the company’s hub strategy. Chief executive Mark Routh executed a similar approach at private equity-backed vehicle CH4 Energy, where fields near to existing and, ideally, owned infrastructure are developed. Founded in 2002 with £1 million of funding, CH4 was sold four years later for £154 million.

House broker FinnCap says: ‘Funding has always been the critical factor for IOG and it is encouraging that the service contractor partnering strategy has ultimately yielded this result. The next share price driver will be the announcement of the rig contractor.’

Issue Date: 07 Dec 2015