Debt-Heavy Compton Fixes Its Balance Sheet

You know the bulls are running when one of the oil patch’s basket cases, Compton Petroleum (CMZ), can raise $150-million with an equity sale.

Debt-heavy Compton took the tough steps needed to fix its balance sheet on Friday by selling shares and warrants in a bought deal led by Canaccord Capital (CCDPF.PK).

The financing saw Compton sell 120 million units at $1.25 each. The units consist of one common share and one warrant. The warrant can be used to buy an additional share at $1.55 over the next two years.

This issue is enormously dilutive to the oil company’s existing owners, something that new management at Compton warned may be in the works last month. The number of shares outstanding will almost double, from 143 million shares to 263 million shares. And that’s before a single warrant is exercised.

Compton was put up for sale last year, as commodity prices tanked and its debt load grew too much to handle. But no buyers stepped forward with a deal that was acceptable to the board. Since then, the company has appointed a new CEO, and oil prices have rallied.

Compton CEO Tim Granger said:

This transaction is an important first step in our restructuring process, contributing to our future ability to unlock the potential of Compton's resource rich asset base. The proceeds of the offering will allow us to reduce our debt level and will result in a stronger balance sheet.

There has been heavy trading in Compton stock this week, and on Wednesday, at the request of regulators, the company said:

Compton is not aware of any specific circumstances that may be contributing to the recent increase in market price and the level of trading activity of its shares.

Late Thursday, the company announced that an equity financing was planned, and the transaction was priced by early Friday.