More funding issues for AIM oil and gas this time on Sound Oil and Max Petroleum

Another day in AIM oil and gas, announcing poor funding deals or even lack of deals! This time around its Sound Oil and Max Petroleum.

Italian and Indonesian focused oil explorer, Sound Oil, today announced a private placement and open offer through Astin Capital Management Ltd.

The Company is issuing another whopping 774,341,464 new shares in exchange for 7,143,300 redeemable subscription notes at a par value of £1 per note.  They will be redeemed in seven equal amounts for a cash consideration at the end of seven separate trading periods, commencing  25th July 2012 and finishing  in February 2013. The cash consideration for the redemption of the notes is calculated as the arithmetic average of the 20 trading day volume weighted average price (VWAP) for each of the seven periods.  The placement also involves the cancellation of all (217,552,682) existing warrants previously issued by the Company.  No new warrants are being issued in association with this placement.

The Company also announces that at the end of the settlement period (a maximum of seven months plus a 40 day extraordinary settlement period, if required), existing shareholders will be offered the chance to participate in an open offer up to a maximum of £1.0 million.  This open offer will be priced at the VWAP for the entire period of the placement. 

Following the issue of the new shares, the Company will have 2.87 billion ordinary shares in issue!

Shares in Max Petroleum, the Kazakhstan focused oil explorer are currently hovering around 3p a share after announcing today that it needs extra capital in order to complete the NUR-1 well at the Emba B Prospect in Block E after failing to secure funds up to now with its lenders. The shares are down from 15p to 3p in the last few weeks.

As a result of the funding shortage the company is releasing the Saipem National 1625 DE onshore deep drilling rig and will need to seek regulatory approval to drilling the well beyond the current deadline of March 4th 2013.

Sound Oil and Max Petroleum demonstrate how tight credit is at the moment to fund exploration activities in oil and gas. Cash is king and if you don’t have it, companies are being forced to adopt alternative sources of financing which often isn’t particularly palatable for private investors. Though Sound has included a “no shorting” clause in its deal, the shares are still down 17% at 1.7p illustrating the risks that lie ahead in terms of big tranches of shares being dumped onto the market and with 0.8 billion shares to dump that’s an awful lot!

Contrarian investor UK