Dont like dilutions On March 25, 2021, SGY sold 2700 boepd for $106 million for $ 39259 boepd. Those were very good assets. Most likely the banks forced them to sell. Banks also forced horrendous hedges too. That is why the current big debt of $310m needs to be paid first on top priority. One of the earlier purchases by SGY before the oil collapsed turned out to be a nightmare for the company because of debt.
History of massive dilution since April end 2021 of about 52 % to acquire 5600 Boepd which is about 26% of the total current production. Have no idea how much organic production was replaced or increased with 4.6m flow-through shares money of $23m. Usually flows through shares are issued at a premium to the current prices because of the tax component but this company issued them for less than a good premium and the share price was still too low. About a 52% increase in the float was used to fund about 26% production plus, I cannot quantify the production that resulted from $23m. It is not going to be anywhere close to the remaining 26%. The point is that massive dilution took place for a relatively smaller quantity of production. I don’t like dilutions. Massive dilutions and reverse splits can at times destroy the older long-term shareholders and I don’t like that and avoid companies that are not shareholder-friendly. Anyone can get trapped in a stock.
Dilution 1.
In April SGY announced 25.4m flow-through shares @ $.59 / $5.015 for $15m then they upsized the offering to 39m / old 4.6 m new shares just to raise $23m cash minus commissions. That was an amateur move. No idea how much production was replaced or increased with these funds.
Dilution 2
In June bought 4100 boepd for $160m i.e @ $39024 boepd for about 229m old shares 26.9m new. Shares for shares transaction. On the day the deal was announced, SGY was trading around $.68 but on the date the was deal closed the share price dropped to around $.43 For 4100 beopd the company went from 379 million outstanding shares to 608.5 million old shares with the additional debt of $15m of the bought company.
Dilution 3
Bought 1500 boepd for $58m @ $38666 and paid with about 11.7 million new shares about 100 million old shares for around $4.95 per share plus $3 million of debt.
The company sold 2700 boepd at $39259 then bought 1500 boepd @ $38666. Got paid in cash for sale and issued shares for purchase. Now the quality of the assets sold and purchased is a totally different debate.
From April to the last purchase of 1500 beopd SGY has issues about 43.2 million new shares. Assumed $18m debt of sellers. These are all rough estimates. I took a shortcut and used the short position report to see the changes in outstanding shares. There is a slight diff in the new release and short position numbers. All these deals were done in haste when the oil had recovered. So there were no distressed purchases. Cannot quantify the premium paid for these acquisitions. Fortunately, the WTI prices have run up further after all these deals and the value of the purchased assets have gone up further. As long as the oil prices stay high all the deals will work out for the company. But they should pay off the debt first.
The total numbers of outstanding shares are now 83.3m / 708m old shares. About 52 % of the float is new and needs to get absorbed by the market. Not all new shareholders will sell. But the ones that got trapped may need to get out. They did not decide to buy SGY for investment purposes and may not want to be long-term shareholders in this stock. . In most stocks about 50 % plus of the volume is generated by HFT. Same shares are flipped again and again. You need to turn over the entire float many times. It can be from 3 to 10 times depending on the stock. The float being much smaller a lower number may work.
This stock needs massive volume somewhere in the range of about 5 million-plus a day for a week or two to really break out and take out anyone that what to get out at current and bit higher prices. These shares need to come into the hands of investors that will wait for better prices. Hopely the management will not dilute any further.