Connacher Oil and Gas Ltd (CLL.TO) on Tuesday said it was taking steps to raise financing that could help fund its Algar oil sands project through anequity offering and a syndicated loan.
Net proceeds of the stock offering would go to fund capital expenditures and general corporate purposes, and could be used to restart construction at Algar, its second steam-driven oil sands development in northern Alberta.
The company did not specify the expected size of the offering in its statement. After the announcement, Connacher’s stock dropped nearly 4 percent on the Toronto Stock Exchange, while the S&P/TSX energy index rose nearly 5.5 percent. With oil prices at a six-month high of more than $60 a barrel, analysts said the stock may have dropped on investor concerns about share dilution after the equity offering. “There’s not any operational reason,” said Justin Bouchard with Raymond James in Calgary. “Seems like (the equity offering) is the only reason out there.”Connacher suspended construction on the C$345 million ($298 million) Algar project late last year The company is one of several oil sands developers that deferred plans for projects due to weak oil prices and shaky credit markets. Along with the offering, Connacher is negotiating with a Canadian bank on behalf of a syndicate of proposed lenders.
It aims to secure a revolving working-capital facility and a construction loan for Algar. While a decision has not yet been made on whether to push ahead with Algar, the loan and the offering would likely raise enough to fund the remaining C$200 million of constructions costs for the project, the company said. Early this year, Connacher resumed production from its Great Divide project in Alberta after curtailing it when operations became unprofitable. Connacher shares were down almost 5 percent to C$1.35 on Tuesday on the Toronto Stock Exchange. ($1=$1.16 Canadian)