This past week was a turbulent one for investors in Bristow Group (BRS), Oasis Petroleum (OAS), and Nordic American Tankers (NAT -2.51%). Those oil stocks got hammered after announcing moves to shore up their balance sheets and business prospects because they paid a high price to do so. That steep price will make it harder for them to create value for investors in the future.
Oil tanker company Nordic American Tankers was the worst performer in the group, plunging nearly 27% on the week. Sparking the downdraft was the pricing of a public stock offering. The company sold $110 million in newly minted shares at $2.75 apiece, which was significantly below where shares traded before the announcement. That said, it needed the money to bolster its balance sheet since it has three new ships joining its fleet next year that it had to finance. While it obtained bank funding for those vessels, it needed more capital to keep its head above water after tanker rates plunged this year. Nordic American Tankers, though, paid a steep price for that breathing room after having sold 40 million new shares, which is a jaw-dropping number for a company that just had 101 million shares outstanding last quarter.
Oil driller Oasis Petroleum also plunged this week after issuing a boatload of new stock, which drove shares down more than 22%. The catalyst was the announcement that it would pay $946 million, including $483 million in cash and 46 million shares of stock, to purchase drillable land in the Delaware Basin, which is one of the hottest shale plays at the moment. In addition, the company also sold another 32 million shares of stock, raising $305 million, to bolster its financial position. Oasis also said that it would sell $500 million in noncore assets later this year to improve its situation further. That said, the big issue for investors is that Oasis issued 78 million shares of stock this week, which is quite a bit of dilution for a company that had 233 million shares outstanding last quarter.
Bristow Group also hit some turbulence this week, falling more than 13% after announcing plans to issue more debt. The helicopter service company announced that it would sell $125 million of 4.5% convertible notes due in 2023, with it expected to use $90 million of that cash to repay existing debt while earmarking the rest for general corporate purposes. The convertible nature of these notes is worth pointing out because it means that they could eventually get turned into new stock and dilute existing investors. At the implied conversion rate, Bristow would issue 8 million new shares, which is substantial considering the company had 35 million shares outstanding at the end of last quarter. That seems like a high price to pay since it didn't look like Bristow needed more cash because it recently deferred some capital spending and sold a pilot training facility.
By issuing a boatload of new stock this week, it will be harder for Oasis Petroleum, Bristow Group, and Nordic American Tankers to create value for investors. Because they now need to spread the wealth across all those new shares, they will leave everyone with a smaller slice of the profits. That's why even after getting hammered this week, those oil stocks don't seem like compelling buys.