View from City Road: Lasmo may need a rights issue

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The Independent Online
Lasmo's North Sea disposal confirms the soundness of its assets, reflected in the values they attract. But the fact that it has been forced to sell them underlines the weakness of its balance sheet.

Despite a weak crude oil price, the company has managed to raise almost pounds 400m from disposals this year. The deal with PowerGen suggests that trade buyers are prepared to price those assets on a long-term crude price of about dollars 18 a barrel when Brent is below dollars 14.

But the deals do little more than stop Lasmo's already weak balance sheet from deteriorating further. The Liverpool Bay gas fields will cost pounds 300m over the next two years. Without disposals gearing would rise from about 80 to almost 100 per cent by 1994.

The group still looks under-capitalised. An oil price surge could make a big difference, but a rights issue, possibly next spring, is the obvious route. Shareholders might find that hard to stomach, but the alternative - selling large chunks of the family silver - could be still worse.

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