An announcement came from Jones Energy Inc. (NYSE: JONE) that sparked a selloff in the stock in the last session.
Jones Energy Inc (NYSE: JONE) said that it is in the process of raising about $132.2 million through the sale of securities. The management said that the reason behind the fundraiser is to generate cash to finance the planned acquisition of oil and gas assets in Oklahoma’s STACK/SCOOP play. The company needs $136.5 million for the acquisition.
What’s on offer by Jones Energy Inc. (NYSE: JONE)?
To raise the targeted amount of $132.2 million in gross proceeds, Jones Energy is selling 21 million common shares. Each common share has been priced at $2.77. On top of the common shares, Jones Energy is offering 1.6 million preferred shares, which are selling for $50 apiece.
Underwriters have been granted the option to purchase additional amounts of the common and preferred shares to cover overallotment.
It is important to keep in mind that Jones Energy Inc. (NYSE: JONE) upped its security offering. Initially the company announced plans to offer 14 million common shares and 1 million preferred shares. The change of mind appears to have been inspired by the need to raise as much money as possible for the acquisition through the open market.
Jones Energy did not disclose how much in net proceeds it expects from the offering. But considering that the company finished 2Q2016 with cash and short-term investments of $59.3 million, it is likely that it will have enough funds to fund the acquisition after it closes the equity offering.
Is it a risky bet?
To some investors consider Jones Energy’s fundraiser a risky bet. First, diluting shares when they are already subdued doesn’t sit well with many existing shareholders. Second, it does seem for many investors that this is the right time for Jones Energy to investment in oil reservoirs.
However, only time will tell whether Jones Energy Inc. (NYSE: JONE) is doing the right thing or not. You find that some energy companies are taking advantage of the weak energy prices to snap up potentially lucrative oil assets with hopes of profiting from them when prices rebound. The planned informal meeting of the OPEC members has raised hopes that major producers might agree to cap output to stabilize prices.