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.
