See, a surging oil price is good for at least one thing: it’s enabled Santos to come to the market looking for cash.
Now, will Woodside be far behind?
Maybe, Woodside shares rose $1.74 yesterday to $45.64, off the back of the higher world oil price, but this huge raising by Santos will be watched closely by Woodside as it assesses its capital needs this year and into 2010.
The company has already revealed lower revenues and gross profits for the first quarter; it has cut spending, reshaped its capex plans for its various projects, and frozen salaries and cut travel.
So far whenever the issue of a capital raising has been mentioned, Woodside has publicly played it down.
Santos’ move could change that and the run up in the WPL share price on the back of the oil price rise near to $US60 a barrel, has given Woodside leeway for an issue without too much of a discount.
Santos has ridden the oil price higher than a 27% discount is much easier to handle when the base share price is above $17 than if it was under 415: the dilutionary effects of the issue fall as the share price rises.
Santos yesterday revealed it was looking for up to $3 billion from its shareholders in two separate parts.
The share offer to investors comprises a 2-for-5 accelerated pro-rata non-renounceable entitlement offer at $12.50 per share.
That’s a discount of 27% to the market price last Friday of $17.09.
Santos also affirmed its guidance to produce between 53 and 56 million barrels of oil equivalent (mmboe) this year and also reiterated its guidance for calendar 2009 to maintain its full year dividend at 42 cents per share, in line with 2008’s payout.
The institutional component has been fully underwritten and will raise a minimum of $1.65 billion.
The retail leg is not underwritten and may raise up to an additional $1.35 billion depending on take up.
The proceeds of $1.05 billion will be used to support Santos’ 17% share of the spending required for the Papua New Guinea LNG project being led by Exxon Mobil (at a cost of some $21 billion) and a $600 million redemption of certain hybrid securities issued in 2004.
Any extra capital raised will be used to fund other projects, including its proposed $8 billion LNG project in Queensland that is expected to get final investment approval in the first half of 2010.Santos owns 60%, Petronas of Malaysia the other 40%.
"The underwritten proceeds of this raising provide Santos with the capital required to fund its equity share of the PNG LNG project and guarantee its share of the project finance debt, while maintaining a strong balance sheet," chief executive David Knox said.
"PNG LNG project is expected to create significant value for Santos and, along with Gladstone LNG, is a critical part of our growth strategy."
"The PNG LNG project is expected to materially enhance Santos earnings once it is completed, and we are raising equity today to fully participate in the project while maintaining our strong financial position,” Mr Knox said.
The offering also has the added benefit of increasing Santos’ issued capital by up to 40%, which makes any one who has been stalking Australia’s third biggest oil player since the cap on shareholding came off late last year, that much harder and more costly.
There has been chat that someone has been soaking up shares quietly, but remaining under the 5% disclosure threshold.
