The Canadian Overseas Petroleum Limited (LON: COPL) share price dropped 11.2% after announcing that more bondholders had converted their bonds into common shares. The company noted that it issued 20,390,014 common shares after certain bondholders decided to convert bonds worth $1.7 million into common shares.
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However, investors reacted negatively to the dilution occasioned by the conversion, which saves the company money since it does not have to continue paying interest on the converted bonds, nor will it be obligated to pay the principal amount on the same because of the conversion.
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Therefore, the conversion saves the company money but dilutes existing investors. COPL has structured its convertible bond such that the newly issued shares will be admitted to training on the London Stock Exchange’s main market within the next twelve months.
Looking at COPL’s stock price chart below, we can see that COPL shares crashed lower on 1 February 2023 when the company announced that it was facing a cash crunch and was at risk of ceasing operations if it did not secure additional funding.
COPL is yet to announce whether it has found a backer willing to inject more cash into its business. The international oil and gas company has also not announced an equity raise or a bond issue to bring in additional funds. Hence, we must assume it is still in danger of ceasing operations.
At the time, COPL noted that its operations had faced multiple interruptions due to infrastructure and paraffin bottlenecks. The oil and gas firm had also incurred an $8.0 million loss on oil and butane hedging contracts, combined with an $8.1 million debt service and financing cost. COPL also incurred a $2.9 million senior credit facility repayment.
The above payments all made during the 2022 calendar year, pushed COPL into its current financial distress. The company further informed investors that production at its Barron Flats Shannon Unit (BFSU) would remain constrained until it can secure additional funding to deal with the bottlenecks.
Since then, investor sentiment towards COPL has been largely negative.
*This is not investment advice.
Canadian Overseas (COPL) share price.
The Canadian Overseas (COPL) share price dropped 11.19% to trade at 6.11p, from Thursday’s closing price of 6.88p.
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