COMPTON PETROLEUM $1.24 (Toronto symbol CMT; SI Rating: Speculative) (403-237-9400; www.comptonpetroleum.com; Shares outstanding: 263.6 million; Market cap: $326.8 million) explores for oil and natural gas in western Canada. About 83% of its production is natural gas.
In the three months ended June 30, 2009, Compton’s cash flow per share fell sharply, to $0.08 from $0.59 a year earlier. Revenue fell 71.0%, to $54.1 million from $186.8 million. Lower oil and gas prices contributed to the declines. As well, the company saw a 29.8% drop in production because it sold land to pay down debt.
Compton’s debt of $853.9 million is a high 2.6 times its $326.8-million market cap. The company is further lowering its debt by selling overriding royalties on its production. Overriding royalties give the buyer ownership of a percentage of production revenue, before any costs.
So far, Compton has raised $54.5 million by selling a 2.5% overriding royalty on its production. The buyers also have an option on another 2.5%, which they may exercise until December 24. That would raise an additional $47.5 million.
Compton has raised a further $161.4 million by issuing units at $1.25 each. Each unit includes one common share and one warrant. Each warrant entitles the holder to buy one common share for $1.55. The purchaser will have two years to exercise the warrant.
The company’s debt will remain high, even with the royalty sales and the unit issue. As a result, Compton will need to keep using some of its cash flow to pay down debt. And unless natural-gas prices rise further, it will be forced to continue lowering its spending on exploration in order to conserve cash.
Compton Petroleum is still a hold.
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