Shares of Pioneer Energy Services (NYSE:PES) are slumping on Wednesday, falling more than 12% by 10:45 a.m. EST. Fueling the sell-off was the land driller's decision to sell stock so it can pay down debt.
Pioneer Energy Services decided to take advantage of the fact that its stock price has roughly doubled over the past month -- largely due to OPEC's agreement to support oil prices -- to raise cash and improve its balance sheet. The company initially wanted to sell 9 million shares, but due to high demand, it upsized that offering to 10.5 million shares at $5.75 per share. While that offering price was a discount to the more than $6.50 per share, the stock sold for yesterday, the price is still up 15% in the last week and 75% over the past month, even with today's drop.
More importantly, Pioneer Energy Services appears poised to raise about $60 million in cash, which will go a long way toward improving its balance sheet. As of the end of the third quarter, the company had $111.5 million outstanding under its $175 million revolving credit facility, so it could cut outstanding borrowings by more than half as a result of this offering.
Pioneer is one of several energy companies that have taken advantage of an opening in the capital markets to raise cash in the wake of the OPEC agreement. For example, this week producers Bill Barrett (NYSE:BBG) and Parsley Energy (NYSE:PE) rushed out of the gates to tap a willing capital market. In Bill Barrett's case, it sold 13.5 million shares of stock in an upsized offering that raised nearly $100 million. In doing so, Bill Barrett took advantage of a nearly 50% surge in its stock over the past month to enhance its financial flexibility. Meanwhile, Parsley Energy was one of several non-investment grade-rated energy companies to tap the junk bond market this week, with issuances coming at the fastest pace in nearly two years. Moreover, this debt is cheap, with Parsley Energy, for example, able to refinance 7.5% debt due in 2022 with 5.375% debt due in 2025.
Pioneer Energy Services did not want an opportunity to raise cash to pass it by, which is why it pounced when the capital markets opened up. It is a very prudent move because it enables the company to reduce debt by a significant amount, which enhances its financial flexibility just in case oil prices do not stabilize as quickly as OPEC hopes.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.