Concho sells shares to clear debt, buy assets

OREANDA-NEWS. October 05, 2015. Concho Resources is selling shares to raise \\$712mn to clear its debt and fund future acquisitions, joining the ranks of other independent explorers taking drastic measures to stay afloat.

Job cuts, asset sales, cutting dividends and issuing new stock are all techniques being tried by US independents that are under pressure for the plunge in crude prices to six-and-a-half-year lows. With growing expectations of the market staying lower for longer, more announcements are likely.

Concho is offering 7.7mn shares in a sale closing on 6 October. It will use the proceeds to "repay all outstanding borrowing under the company's credit facility, which were used to in part to finance recent acquisitions." It will also use the money to fund "potential future acquisitions."

Concho's cash inflow in the first six months of the year was \\$489mn, down more than 40pc from \\$855mn a year earlier. But total spending, including capex, rose to \\$1.28bn from \\$1.13bn in the same period, resulting in its net cash inflow deficit widening to \\$795mn from \\$270mn a year earlier. The cash flow deficit widened even though it booked gains of \\$279mn from settlement of hedges in the first half of this year. It had paid \\$41mn a year earlier to take on fresh hedges.

Like Concho, almost every oil and gas producer has seen cash flows dip into steep deficits this year, putting pressure on them to do more to improve their balance sheet. Only a handful, like Apache, has generated positive inflows, largely on account of asset sales.

As producers like Whiting and Devon join Apache in selling assets to shore up their balance sheet, Concho and others like EOG and ExxonMobil's shale subsidiary XTO are looking to snap up properties on the cheap to add to their existing portfolio of oil and gas acreage.

Chesapeake is cutting 15pc of its workforce as "part of our continued efforts to address this pricing environment head on," chief executive Doug Lawler said this week. The company will have about 4,000 employees after the reduction of 740.

Chesapeake's job cut comes after the producer said in July it will stop paying common stock dividends beginning in the third quarter, saving about \\$240mn annually. Denbury Resources also announced last month that it will suspend its quarterly cash dividend, beginning in the fourth quarter, saving \\$88mn annually. It plans to use the savings to repay debt and increase capex.

Top independent ConocoPhillips also said it would cut about 10pc of its global workforce of 18,100. The largest percentage of reductions will happen in North America, with 500 eliminated from its current staff of 3,753 in Houston. So far ConocoPhillips has said it will maintain its dividend.