Sound Oil, an upstream oil and gas company with assets in Italy and Indonesia, is to tap the market to fund operations in both countries.
The company plans to issue 774m shares for variable amounts, with the issue prices set at the end of seven separate trading periods, beginning July 25th and finishing in February 2013. The exact amount raised will depend on the future share price, but if it remains stable, around £6.0m will be raised after costs.
The newly issued shares will represent around 27% of the enlarged issued share capital of Sound Oil.
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The money raised will be used to fund continuing operations including probable testing of the Jatayu-1 exploration well at its 20 per cent owned Citarum block and two other wells on the Citarum block. The proceeds will also provide contingency funds for the Nervesa well and will fund the development of Rapagnano and Casa Tiberi, Italy.
Gerry Orbell, Sound Oil's Chairman and Chief Executive, said: "This placement enables Sound to cover the anticipated additional expenditure in Citarum, including the completion of the complex Jatayu well and the forthcoming Geulis and Cataka wells, all of which will be drilled continuously throughout the rest of the year."
After the placing has been completed the firm will make an open offer to buy back shares from existing shareholders, spending up to a maximum of £1.0m to do so. The offer will be priced at the volume weighted average price for the entire period of the placing.
The placing has an unconventional structure, with the group exchanging its 774m shares for 7.14m unsecured non-interest bearing subscription notes redeemable at prices linked to the average share price of Sound Oil in the 20 trading days running up to the redemption dates. The private placing is being conducted through Astin Capital Management.
"The directors continue to believe there is significant upside in Sound stock. This innovative structure was specifically designed to limit dilution at current prices, therefore enabling the company to benefit from future price increases during a very active operational period," Orbell said.
"I am pleased to confirm that this placement also removes all warrants previously issued by the company and therefore removes a future overhang from the stock, further increasing the upside exposure for existing shareholders," Orbell added.
The firm also reported that during the last two months it has completed all actions required in preparation for the core appraisal drill at Strombone, but said the award of all drilling permits in the Basilicata region requires more time to satisfy any concerns on environmental and regional development issues.
The company remains confident it will secure the permit to drill Strombone in the near term and discussions with the region and the local council continue. It is now expected that the Strombone appraisal drilling will occur early 2013.
Because the Strombone project is dragging on and no material expenditure is now planned for Strombone in the near term the company has terminated the negotiations with the oil and gas fund that was interested in lending money to fund the project.
Orbell continued: "The company will be focusing its efforts on the important Jatayu and Nervesa wells in the coming weeks. At Jatayu we expect to acquire wire-line log results over the 390 foot hydrocarbon bearing section imminently. This may be followed by deepening the well to the primary objective and/or testing. The Nervesa gas appraisal well is on schedule for drilling in the autumn 2012. Both these priorities are potentially transformational for the company."
The share price fell 14.63% by 09:12.
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