Where next as Oil Search launches $1.16 billion Equity Raise
'Our capital preservation measures, together with the Equity Raising are intended to ensure that Oil Search can withstand a prolonged period of lower oil prices,' said the company's Managing Director.
It’s as if companies are trying to one up each other with just how much capital they can raise.
Last week NextDc completed a $672 million placement, Flight Centre looks well on its way to raising close to $700 million; and today, Oil Search (OSH) announced that it was planning to raise US$700 million or AUD$1.16 billion – equivalent to about a quarter of the energy company’s total market capitalisation.
Ultimately, with oil prices trading approximately 50% lower than they did just a month ago, this move is hardly a surprising one. Less surprising still was Oil Search noting that it intended to use the funds from the proposed raise to shore up its balance sheet and increase liquidity, so that the company could ‘withstand a prolonged period of low oil prices.’
For reference, Oil Search's stock has also fallen approximately 50% in the last month.
Oil Search share price: details of the raise
The largest portion of this $1.16 billion equity raise will be made up of an underwritten institutional placement – which aims to raise some $760 million.
Oil Search will also raise as much as $400 million from 1 for 8 accelerated non-renounceable Entitlement Offer – aimed at both retail (non-underwritten) and institutional investors (underwritten).
'A non-underwritten PNG offer for eligible PNG shareholders on substantially the same terms as the as the Entitlement Offer [...] subject to obtaining PNG approvals,' was also announced.
Off the back of all this, Oil Search currently expects to issue approximately 552 million new shares at $2.10 per share. Like many of the companies now tapping the market for fresh capital – these new shares will be issued at a steep 23.1% discount to Oil Search’s last traded price of $2.73 per share.
At its 52-week high, Oil Search’s stock traded hands at $8.30 per share. So, a 74.69% discount, to that price.
Other bits and pieces
Besides raising fresh capital, Oil Search today announced a number of other measures it is currently implementing in response to elevated levels of market volatility, including: the suspension/ deferral of various discretionary activities; the implementation of cost cutting measures such as salary cuts and headcount reductions; and the implementation of business continuity plans as they relate to potential Covid-19 disruptions.
The company also noted that it had extended the ‘maturity of the US$300 million loan facilities from 13 September 2020 to 30 June 2012, such that Oil Search now has no near-term debt matures on its corporate facilities,’
OSH also noted that it was on track to hit its previously stated 2020 full-year production guidance.
How to trade gas and energy stocks
What do you make of Oil Search’s gargantuan $1.16 billion equity raise announcement: is it a positive or a negative? Though at the time of writing OSH remains suspended from trade, you can still use IG’s world-class trading platform to trade a variety of gas and energy stocks – long or short
For example, to buy (long) or sell (short) Santos using CFDs, follow these easy steps:
- Create an IG Trading Account or log in to your existing account
- Enter ‘Santos’ or ‘STO’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
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