Sound Oil (LSE: SOU) the European/Mediterranean focused upstream oil and gas company today issued two separate RNS’ the second of which is a lesson in value destruction in which they were:
pleased to announce a placing to raise a total of £12.0 million, before expenses, through the issue of 63,157,895 new ordinary shares at a price of 19 pence per ordinary share with an equal number of detachable warrants to subscribe for new ordinary shares in the Company at a price of 24 pence per ordinary share for a period of 5 years from issue.
The number of warrants issued will be 63,157,895 and are expected to end up on the Vienna Stock Exchange.
The reason Sound Oil cite is to ‘provide the Company with additional funding to execute various strategic corporate and asset acquisitions, which are currently under negotiation’.
The RNS continues:
Metano Capital SA (“Metano”), a wholly owned subsidiary of Continental Investment Partners SA (“Continental”), has agreed to subscribe for a total of 63,157,895 new ordinary 1p shares in the Company…The new Ordinary Shares subscribed for by Metano are to be subsequently placed with various pre-identified institutional investors who are unconnected to Continental
So not only will Continental be the middle-man between the warrants being issued and them likely/probably ending up on the Vienna Stock Exchange but also they will get their hands on the new shares to be distributed to persons unconnected to Continental.
Here’s the most interesting part of the RNS:
Marco Fumagalli, a director of the Company, is Managing Partner of, and a 25% shareholder in, Continental. Under the AIM Rules for Companies therefore, Continental is deemed to be a related party of the Company. As a result, the Placing and the payment of the Placing Fee constitute related party transactions pursuant to Rule 13 of the AIM Rules for Companies.
Smell fishy to you?
In regards to the ‘asset allocations’ that Sound Oil need the proceeds of the placing for they cite:
- Advanced discussions on a strategic partnership with a major oil and gas company to fund and technically de-risk a selection of Sound Oil’s assets
- Farming in to a Southern Mediterranean onshore gas discovery with very significant estimated reserves and exploration upside
- Consolidation in Italy, including the acquisition of various onshore exploration, development and production assets
The trouble with Sound Oil apart from the above is that they are still loss making:
A huge impairment charge and an increase in external interest costs makes this income statement look ugly.
The balance sheet is pretty ugly but for different reasons:
Cash and short term deposits looks nice with the addition of approximately £12 million since last year until you consider loans due in over one year of £13,437,000: the cash flow statement shows net proceeds from debt to be £11,398,000 and net proceeds from equity issue of £8,213,000.
That’s a lot of unearned cash sitting on the balance sheet but where did the cash come from and how are the terms of the loan structured?
The Company has now issued the remaining £5.5 million of loan notes to Greenberry S.A., a wholly owned subsidiary of Continental Investment Partners S.A., (the “Investor”) together with the issue of 52,884,615 detachable warrants to subscribe for new ordinary shares in the Company at a price of 10.4 pence per share at any point during the period of the loan
There are those Continental people again.