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Petrolifera rolls out desperation financing

Petrolifera Petroleum does a dilute stock sale to pay down debt, after failing to sell a division

Andrew Willis

Monday, August 24, 2009

Shedding debt can be tough on equity holders, as Petrolifera Petroleum showed with a recent financing.

Petrolifera found itself in a bind after cancelling a planned sale of oil and gas properties in Argentina. The properties went on the block as the junior oil company moved to pay down loans, only to find there no buyers at an acceptable price. Tristone Capital was the financial advisor on the failed sale.

A debt-heavy balance sheet meant a sea change in sentiment on Petrolifera, which was a market darling last summer, selling stock at $9.

This year, the stock has underperformed oil and gas peers, touching lows of 75 cents.

To put its finances back in order, Petrolifera raised $50-million in a deal that closed last week/ The company sold 56.8 million units at 88 cents each. Each unit consists of a Petrolifera share and half a warrant, and the warrant can be converted into stock at $1.20 per share over the next two years.

Thomas Weisel Partners, Cormark Securities and RBC Dominion Securities led the financing. Connacher Oil and Gas, a minority shareholder, bought a portion of the underwriting to maintain a 24 per cent stake in Petrolifera.

“While highly dilutive, the financing materially improves Petrolifera’s balance sheet,” said a report Monday from CIBC World Markets analyst Robert Par�. He said the company now has considerable financial flexibility, with $50-million available on a $100-million credit facility, and Mr. Par� has a $1 target price on the stock, down from $1.50, to reflect the dilution that came with last week’s financing.

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So the deal closed last week. How about that. The last press release stated that the deal would close on of about August 28th. It's a done deal. Connacher bought 24 % of the share alotment to preserve its majority ownership position in Petrolifera which closed at 0.84 cents today.

Best Wishes; Scott