Canada and Italy focused oil firm Cabot Energy plans to launch an equity fundraising at a 'deep discount' to its current market price in order to bolster its financial position.
As stated in the company's interim results dated 28 September 2018, additional equity or debt funding was required by the end of 2018 in order to: (i) settle overdue Canadian trade creditors arising predominantly from the previous management team's 2017 and 2018 Canada work programme cost overruns; (ii) fund ongoing corporate costs; and (iii) deliver production growth in Canada and develop the Italy assets. The work programmes (and associated costs) were under review.
During the past two months, and as first reported by the Company on 20 November 2018, the Company's Canadian crude oil revenues were unexpectedly and adversely impacted by the Edmonton Light Oil contract price that had diverged negatively from the West Texas Intermediate crude oil benchmark price.
Whilst this discount to West Texas Intermediate crude oil price has narrowed due to the Alberta Government curtailment of larger producers , the directors intend to monitor this impact before committing to the next phase of capital investment for production growth.
The company has the continued support of its majority shareholder, High Power Petroleum, and the directors are in advanced discussions with the Company's other significant shareholders regarding an equity fundraising to enable the settlement of the overdue Canadian trade creditors and provide short term working capital through to the end of Q1 2019.
Any equity fundraising, which would be subject to shareholder approval, is expected to be undertaken at a deep discount to the current market price and, once finalised, is expected to be announced during January 2019. The directors intend extending an invitation to all shareholders to participate in any equity fundraising on the same terms as the company's major shareholders by way of an open offer.
The company would then plan to approach the market again in Q2 2019 to seek further equity funding for a growth business case.
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 wholly within the company's control and as such, represents a material financial uncertainty.
Failure to complete a fundraising 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.