Oil Search eyes $1bn raising
Oil Search will seek to tap shareholders for $1bn-plus as rock bottom oil prices raise concern about its balance sheet.
Oil Search will seek to tap shareholders for $1bn-plus as rock bottom oil prices raise concern over the strength of its balance sheet amid a prolonged market rout.
The Papua New Guinea-focused LNG producer is expected to pursue the big equity raising for as little as $2 a share, which would represent a hefty 26 per cent discount after its shares closed at $2.73 on Friday.
The energy operator has shed two-thirds of its value since January with the collapse in oil prices sparking major cost-cutting in a bid to conserve cash after it warned of “unprecedented times” in markets.
Shareholders are nervous about the ability of companies including Oil Search to stay within their debt covenants should crude prices remain low for an extended period.
A trading halt is in place until April 14 with a raising tipped to be launched on Tuesday. Some in the market are concerned over the level of interest from institutional investors given heightened sector volatility.
The other variable is how oil prices trade over the next few days amid a tense stand-off this week between OPEC and Russia over their month-long supply spat and the potential for US President Trump’s crude commentary to further roil prices.
The Australian’s DataRoom column reported on Monday that Oil Search was seeking funds from the equity market, with suggestions that investment bank Goldman Sachs and Macquarie were sounding out investors about a potential raising.
Oil Search has a $US300m ($496m) debt facility due in September and the oil producer’s share price has moved from more than $7 at the start of the year to close at $2.73, taking its market value to $3.98bn.
Oil Search has $US3.4bn in debt, $US396m in cash and $US796m in undrawn facilities at December 31.
Another factor likely playing on the minds of Oil Search directors is the company’s debt covenants.
Still, any breaches may be waived for the time being by lenders sympathetic to the grip of COVID-19.
Oil Search is losing money at current oil prices and may need to consider packaging itself for sale if the crude slump persists, analysts say.
The company suspended a sale of its Alaskan oil project on March 18 and will dramatically cut costs amid investor concern over its ability to handle a hefty debt burden.
Spending for 2020 would drop to $US440m to $US530m from a prior $US710m to $US845m projection.
Further cuts could be put in place for 2021 if lower oil prices persist.