Lasmo comes to market for further pounds 219m: Long-expected call to ease the squeeze on finances caused by lower oil price

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The Independent Online
LASMO, Britain's second-largest pure oil exploration and production company, launched a long-expected pounds 219m rights issue yesterday to ease a financial squeeze caused by low oil prices.

Shareholders will be offered two new shares for every seven held, at 105p a share. Lasmo shares ended down 1p at 128p.

The company has struggled since its ill-fated purchase of Ultramar for about pounds 1bn in 1991.

Although Lasmo has cut costs and debt, the collapse in the dollar oil price last year left it vulnerable to further declines.

Joe Darby, chief executive, said the company was not in desperate need of cash. But there was a risk that some key developments might have to be postponed.

'We are determined to meet our objective of building a business which is profitable at low oil prices,' Mr Darby said.

'The rights issue leaves Lasmo better placed to develop its low-cost fields in Liverpool Bay, the North Sea and Pakistan, which are due to come into production from late 1995 onwards, and to finance its attractive appraisal and exploration prospects.'

A fortnight ago, Lasmo reported a pounds 131m net loss for 1993, an improvement on 1992's loss of pounds 392m, though a poor second half contributed to an underlying loss of pounds 59m following a profit of pounds 41m in 1992.

The final dividend was passed and Lasmo said its annual dividend would be frozen at 1p a share until finances improved.

Costs are expected to fall 25 per cent over the next three years, while production rises from last year's 167,000 barrels a day to 210,000 barrels in 1996.

Exploration and appraisal expenditure is budgeted to drop from pounds 84m last year to pounds 60m in 1994.

But the rights issue was the best option available to obtain the headroom needed to put the company in a more financially comfortable position this year, Mr Darby said.

He said that the option of selling off assets appeared to have run its course after pounds 274m was raised from disposals in 1993, leaving only a small asset in Indonesia for sale.

Analysts were divided about the merits of the rights issue.

Tony Alves, of Henderson Crosthwaite, said that a year ago Lasmo would have been unable to find underwriters for the issue.

'But the company has got down and done the hard work in reorganising its portfolio.'

Also in its favour, US investors had acquired a quarter of the company over the past nine months, a fact recognised by management who were flying to the US yesterday afternoon.

Compared with the US sector, Lasmo looked cheap on a cash-flow basis, Mr Alves added.

Nicholas Clayton of Nomura Research International Europe said Lasmo had disappointed shareholders in the past after a series of rights issues.

Even though costs and debt had been reduced, the company had yet to prove its ability to consistently find oil profitably.

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