Oil Search has joined the growing club of companies asking shareholders for more money.
In the case of energy groups its a double whammy from the impact of the COVID-19 pandemic and the stupid price and volume war between Saudi Arabia and Russia and with the US frackers a silent but important component of the collapse.
Oil Search wants $US700 million (A$1.16 billion) from institutional shareholders to increase liquidity so the company can get through the current oil price slump.
The new shares are being offered at $2.10, a 23% discount to the last trading price of $2.73.
The company promising another big cut in costs by cutting all discretionary activities, reducing staff and salaries, and extend a $US300 million loan by nine months to June 2021. That means the company will have no loans maturing this calendar year.
The investment will be cut even deeper than revealed in the March 18 announcement.
Oil Search says it will make a “40% reduction in 2020 forecast investment expenditure guidance, from US$710-845 million to US$440-530 million (as announced on 18 March 2020).
“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,’’ managing director Keiran Wulff told shareholders in a statement to the ASX.
After it raises the money the company will have $US1.8 billion available and can survive until the end of 2021 even if Brent oil prices remain in the low $US20s a barrel. (they are currently in the low $US30’s).
The company said yesterday that it is “well-positioned to deliver its world-class growth projects in Papua New Guinea and Alaska when market conditions improve.”
“Normal production levels have been maintained during the first quarter of 2020, with production of 7.3 mmboe, comprising 6.3 mmboe for PNG LNG, produced at an annualised rate of 8.7 MTPA, and 1.0 mmboe for Oil Search- operated assets.
“Oil Search has reconfirmed its 2020 full year production guidance of 27.5 – 29.5 mmboe, assuming no business interruption from COVID-19,” the company said in Tuesday’s statement.