Desperately Seeking Cash

By Eric Fox | October 25, 2012 AAA

Exploration and production companies are prodigious users of capital and usually need to invest heavily to replace rapidly depleting oil and gas reserves. This constant search for capital has led some energy companies to access the capital markets or conduct other transactions to raise this much-needed cash.

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Debt and Equity
Gulfport Energy (Nasdaq:GPOR) is involved in various project areas across North America, including the Utica Shale and the oil sands in Canada. The company estimates that capital spending in 2013 will range from $317 million to $327 million, not including capital spending related to the Grizzly Oil Sands project.

Gulfport Energy has accessed both the debt and equity markets to fund part of this program. The company issued $250 million of senior notes due in 2020, and will use the proceeds to pay down its credit facility as well as fund capital expenditures.

Gulfport Energy also sold its Permian Basin oil and gas assets to Diamondback Energy (Nasdaq:FANG) in exchange for cash and common stock. The company conducted an initial public offering immediately after acquiring the assets from Gulfport Energy.

Penn Virginia (NYSE:PVA) accessed the equity markets to raise capital and issued common and depositary shares, raising combined proceeds of approximately $149 million. The company also raised capital in July 2012 through the sale of its non-Marcellus Shale Appalachian Basin assets for $100 million.

Penn Virginia will use the proceeds of these deals to pay down its credit facility and fund its capital program. The company also announced the end of its common stock dividend when it released earnings for the second quarter of 2012.

SEE: Raising Capital- Issuing Long-Term Debt

Eagle Ford Shale
Sanchez Energy (NYSE:SN) is focused on the Eagle Ford Shale and recently issued Series A Cumulative Perpetual Convertible Preferred Stock, raising approximately $144 million in proceeds. The company also secured a $250 million credit facility and a $250 million term loan to provide more liquidity. Sanchez Energy will use the proceeds to accelerate the development of the company's 95,000 net acre position in the Eagle Ford Shale, most of which is in the wet gas area of the play.

Deleveraging
Forest Oil (NYSE:FST) got a little too leveraged over the few years and in July 2012 announced a divestiture program to reduce its debt load. The company just announced the sale of oil and gas properties in south Louisiana for $220 million. The properties produced 20 million cubic feet of natural gas equivalents per day in the most recent quarter and contained proved reserves of 45 Bcfe at the end of 2011.

Forest Oil has now raised $277 million through divestitures and has reduced capital spending for the final two quarters of 2012, with a goal of having cash flow and capital spending at an equivalent rate by the fourth quarter of 2012.

SEE: Deleveraging: What It Means To Corporate America

The Bottom Line
Exploration and production companies always seem to be looking for additional capital, either to replace rapidly depleting oil and gas reserves, or to deleverage when debt burdens become too great.

At the time of writing, Eric Fox did not own any shares in any company mentioned in this article.

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