McMoRan's Massive Share Sale

If it feels like there's a company out there stumping for cash every single day, well, that's because there is.

On Monday, McMoRan Exploration (NYSE: MMR  ) rolled out a combined offering of 11 million common shares and 50,000 preferred shares. By the time the deal was priced the following day, the offering had been expanded to 14.5 million common shares and 75,000 preferred shares. On the common share side, after factoring in the standard underwriters' overallotment exercise, this offering amounts to as much as a 24% dilution of shareholders' stake in the explorer.

Despite similar share-raising experiences by the likes of Stone Energy (NYSE: SGY  ) and ATP Oil & Gas (Nasdaq: ATPG  ) , this move still caught me pretty off guard. Most of McMoRan's debt is in the form of a senior note that doesn't mature until 2014. At the end of the first quarter, the E&P had nothing drawn on its revolving credit facility.

Of course, the firm doesn't have a great deal of availability under that facility, either. McMoRan's borrowing base was cut dramatically back in April. A letter of credit supporting the reclamation obligations tied to the acquisition of Newfield Exploration's (NYSE: NFX  ) Gulf of Mexico shelf properties reduces availability by a further $100 million. That leaves just $135 million of availability on the revolving bank line.

So, I suppose it makes sense that McMoRan feels constrained by its current liquidity situation. In the offering prospectus, the firm notes that it's looking into securing a two-year drill rig commitment to further its exploration campaign. That would add over $100 million in net capital requirements, though cost-sharing with partners like Plains Exploration & Production (NYSE: PXP  ) or Mariner Energy (NYSE: ME  ) could reduce that sum.

McMoRan clearly has its eyes on some big prizes -- with ExxonMobil's (NYSE: XOM  ) abandoned Blackbeard prospect probably topping the list -- but the company's setting quite a high hurdle by blowing out the share count to such a degree. I'm placing my exploration dollars elsewhere.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 18, 2009, at 4:02 PM, paultaut wrote:

    One can look at a glass half full or half empty.

    You were surprised about an offering, I wasn't.

    Like You said, they acquired some NFX properties but what you didn't include was the acquisition of 2 of 3 leases bid on which were the result of a recent Gov. auction in the Gulf.

    From these actions and the share offering which was unanticipated and way oversubscribed on the PFD side, I am making an assumption that they believe they have something Big in the Gulf and are just "Lining up their Ducks".

    It isn't wise to buck the Chairman of FCX.

  • Report this Comment On June 18, 2009, at 5:18 PM, qwoofbark wrote:

    I totally agee with Paultaut...and indeed, find the article lacking in any credibility. I have no idea why the quality of articles issued by the MF have deteriorated quite so much as they have....perhaps they are employing snotty.-nosed boys to do the work of men.

  • Report this Comment On June 18, 2009, at 5:26 PM, qwoofbark wrote:

    I totally agee with Paultaut...and indeed, find the article lacking in any credibility. I have no idea why the quality of articles issued by the MF have deteriorated quite so much as they have....perhaps they are employing snotty.-nosed boys to do the work of men.

  • Report this Comment On June 18, 2009, at 5:51 PM, qwoofbark wrote:

    Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.

    *****************************************************

    Then why is he posting his foolish views?

  • Report this Comment On June 19, 2009, at 12:26 PM, paultaut wrote:

    in Conjunction with this offering, 2 Insiders picked up almost 1 million shares on the open market.

    As noted previously a Foolish view bucks Moffett who picked up some 870,000 shares.

    It is really unfortunate to see such activity go unpublished via commentary or otherwise. But, since this would be contradiction to Shute's view, the omission is hardly surprising.

  • Report this Comment On June 19, 2009, at 7:10 PM, qwoofbark wrote:

    I don't think Shute has a view (he bangs on aimlessly with neither rhyme nor reason) and I do not think the omission to be anything more sinister than incompetence. This writer has no place on a respectable site.

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