Credit Crunch Forces Imperial Energy To Make The "Rights" Decision
The ongoing credit crunch has started effecting oil exploration companies too as Imperial Energy found out the financially hard way. The company, which has concentrated on extracting oil in Russia, said that due to lack of funds due to the global credit crunch, it had abandoned its debt financing plans and had alternatively decided to go in for a 302 million pound rights issue.
The statement however sent the company's shares spiraling downwards to its lowest price in six months and at 949p sliced out 150 million pounds of its market valuation. Explaining the company's decision, Imperial Energy's chairman, Peter Levine said that the problem was not that there was no money available at all, but that the terms and rate of interest were not very attractive. He said “Conditions were not very good, so we decided an equity issuance was the thing to get us where we wanted”. On the technical front Imperial has seen its output drop down from 10,000 barrels per day to around 7,000 barrels in the first quarter of 2008. However, it is targeting to achieve 25,000 barrels per day at the end of the current year and increase it to 35,000 barrels at the end of the next year. The total cost involved in this expansion could be 176 million pounds in the current year and 250 million pounds by next year. So, even as global oil prices touch above 111 dollars per barrel, the lack of funds in the global market has slowed down Imperial Energy's expansion plans and prompted the company to get its money from investors.
Imperial has oil fields mostly in northwestern Kazakhstan and in Tomsk, in Western Siberia. Imperial has already faced the heat from Russian Authorities who want to know the actual figures of its oil reserves. The fact that Imperial was formed only in 2004 and thus would not easily qualify for debt finance in such a short time might have prompted the company to go in for a rights issue instead of raising money on unattractive terms. The fact that it could rub the Russian political system the wrong way could also be one of the reasons why lenders could be shying away from the company. Imperial's rights issue would be underwritten by ABN Amro's Hoare Govett division and Merrill Lynch and in addition to financing its Siberian on field program, would also be utilized to refinance a 100 million pound loan, which is due in November. The company's statement said that the rights issue would ensure that they would be fully funded till 2010 and that an improved cash flow after that would mean that the company could be self financing in the future. The company believed that it was through equity that their asset base could be developed better and funded and it would provide the company the financial strength to move the business forward. The timing of the rights issue however will enrage several investors since Mr. Levine had just sold one third of his own stake in the company worth around 25 million pounds only 2 months back and that too at around 16.75 pounds, which was almost double the current rate. Even after that sale Mr. Levine still holds 3.1 million shares, which translates to around 6% of the company. The sharp drop in the company's share prices was termed as an over reaction by some experts and according to Andrew Whittock of Oriel Securities, it in fact presented an opportunity to buy the company's shares since the company's development plan was quite low risk.
If Imperial Energy's plan to raise equity and raise oil production while successfully handling the Russian government succeeds, then the share prices could again register a rise since the ridiculously high oil prices at least guarantee a tidy profit on the oil produced by them.
Article written by: Craig Parker - Make Money Expert |
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