The stock of Madagascar Oil has been suspended on London's AIM exchange, just three weeks after its debut in a £50 million (Dh285.52m) initial public offering.
The development is not only a setback for the company - a minnow that reported zero revenue and a small net loss last year - it could also threaten the broader outlook for developing east Africa's biggest known oil resource.
Despite its current lack of revenue or oil production, Madagascar Oil, which has its head office in Houston, Texas, holds concessions for two huge onshore oilfields in Madagascar, each holding billions of barrels of crude. The oil was discovered more than a century ago but remains unexploited because most of the reserves consist of heavy and ultra-heavy crude, which is technically challenging and expensive to produce.
One of the fields, Bemolanga, is an oil sands deposit, in which tar-like bitumen is found liberally mixed with grit. The oil is near the surface and could be mined rather than pumped, then cleaned of sand using technology pioneered in Canada.
Madagascar Oil had already lined up the French oil major Total to help it do just that. It had also shown in a 2008 pilot study that a so-called in situ extraction technology that has been applied successfully to Canadian heavy oil deposits could be used to pump crude from the island's other big onshore oilfield, Tsimiroro.
Furthermore, the company's drilling work to assess Tsimiroro's reserves suggests the field also contains pockets of light oil and significant amounts of gas.
"Our vision is to be the leading in situ and mining producer of light, heavy and bitumen oil onshore in Madagascar, using superior technology and operational excellence to maximise value for the benefit of our shareholders and the people of Madagascar in an environmentally and socially responsible way," the company states on its website.
"This isn't an exploration play; it's an execution play," Laurie Hunter, the chief executive of Madagascar Oil, said last month as he sought to convince investors to back a larger pilot scheme that would use steam to coax as much as 1,000 barrels per day of Tsimiroro's sticky crude from the ground within a year.
But on Thursday, following another upbeat company presentation to analysts, Madagascar's ministry of mines and hydrocarbons served notice that it wanted to take back the Tsimiroro oil licences.
"The ministry has indicated that it is interested in acquiring from the company all of its licences excluding Bemolanga," said Madagascar Oil said on Friday. "There can be no guarantee that any price agreed for such an acquisition will be representative of the fair value of such assets."
While a Tsimiroro pilot may require more than US$1 billion (Dh3.67bn) of further investment, the business could eventually be lucrative. It could establish Madagascar as an oil exporter, while associated gas could fuel power plants badly needed in a country that is burning its hardwood forests for domestic fuel.
The resultant deforestation is simultaneously destroying the habitat of many animal species, such as lemurs, that are found nowhere else on Earth, robbing the island of a unique ecotourism resource.
For the moment, the more ambitious oil sands mining venture with Total has not been threatened. The French company became the project operator in 2008 by acquiring a 60 per cent stake. It would shoulder most of the costs of the proposed mine if the partners decided to proceed.
But Total has other commercial oil sands opportunities that could take priority over a costly project in an unstable African nation lacking infrastructure.
On Friday, Total announced a "strategic alliance" with Suncor Energy, one of Canada's biggest oil sands players, under which the companies will pool their interests in several large Canadian bitumen projects. The deal includes a "portfolio balancing" provision requiring Total to pay Suncor C$1.75bn (Dh6.34bn) on January 1.
Madagascar's regime came to power last year in a coup that established Andry Rajoelina, 36, a local media tycoon and former disc jockey, as Africa's youngest head of state. Opponents of the president reportedly staged an unsuccessful counter-coup last month.
The ousted president, Marc Ravalomanana, who was widely accused of corruption while in power, fled to South Africa.
The political and economic uncertainty afflicting the island could keep Madagascar's crude reserves underground, just as other east African nations such as Uganda push ahead with oil development.
Madagascar Oil shares last traded in London at 76.5 pence. The stock has fallen more than 17 per cent in the past month.