Shares in Canadian oil producer Cabot Energy PLC (LON:CAB) plunged on Monday as it signalled its intention to raise funds at a deep discount.
The cash-strapped company said it retains the support of its majority shareholders, High Power Petroleum, and is in discussion with other significant shareholders regarding an equity issue.
The company warned that any equity issued is likely to be made at a deep discount to the current market price; smaller shareholders are likely to be offered the opportunity to subscribe for shares at the same price as those major shareholders that take equity.
Shares in Cabot plunged 0.89p to 0.64p on the news.
Cabot said that if it gets the first fund-raising away, the plan is to approach the market again in the second quarter to seek further equity funding to grow the business.
The directors are reasonably optimistic that the company can raise additional equity funding from existing and new shareholders, as it has done in the past, but it is not a done deal.
Failure to complete a fund-raising in January 2019 would cast significant doubt upon the company's continued ability to operate as a going concern as it may be unable to realise its assets and discharge its liabilities in the normal course of business, Cabot advised.
As previously announced, during the past two months the company's Canadian crude oil revenues have been adversely affected by the Edmonton light oil contract price, which has diverged negatively from the West Texas Intermediate (WTI) crude oil benchmark price.
Happily, the discount to the WTI crude oil price has narrowed due to the Alberta Government curtailment of larger producers but Cabot’s directors intend to monitor this impact before sanctioning the next phase of capital investment for production growth.