Shares of Northern Oil and Gas (NOG 1.47%) jumped 11.2% as of 12:30 p.m. EST Friday, after the Minnesotan oil producer set the pricing last night on an offering of 12.5 million shares that was first announced Wednesday.
Those shares, plus up to 1.9 million more shares covered by underwriters' overallotment option, will be sold for $9.75 each.
Northern Oil stock initially declined in price (yesterday) in response to the announcement of the share offering (and, presumably, uncertainty about the offer price) and of an accompanying offering of $500 million worth of senior notes (i.e., debt).
It's rising again today, and indeed surpassing its closing price before the equity and debt offerings were announced, on new details such as:
- Northern Oil's explanation that it plans to use the money raised to pay for "the Company's recently announced pending acquisition of certain non-operated natural gas assets in the Appalachian Basin from Reliance Marcellus, LLC."
- If the Reliance Acquisition should fail to happen, Northern Oil will use the cash "to repay or redeem outstanding indebtedness and for general corporate purposes."
Investors seem to feel reassured today, knowing that the shares are being offered at "only" an 18% discount to current share prices; that the oil company isn't (necessarily) running out of cash, but just ensuring it will be able to proceed with its announced acquisition; and -- maybe -- that the $140 million or so raised from the stock offering might be directed toward paying down Northern Oil's sizable $985 million debt load.
That seems reasonable. While nobody's a fan of stock dilution from stock offerings, Northern Oil currently isn't making any money selling oil (it's actually lost $872 million over the past 12 months). Given these circumstances, raising cash from selling stock seems the move most likely to keep this company solvent.