Europe’s oil-service firms brace for stock discounts

European oil-service companies, stung by crude prices at 12-year lows, may be forced to sell new shares at a substantial discount to win investor backing as finances dwindle.

France’s CGG won shareholder approval this week to raise capital, while Saipem has said it may sell new stock this quarter, while Seadrill, Vallourec, and Bourbon could also seek investor funds, according to Societe Generale.

“The key participants in any rights issue will be the existing shareholders,” said Nicholas Green, an analyst at Sanford C Bernstein in London.

“To convince them, you may need a deep discount. A standard range we’re talking is 20% to 30%.”

CGG, the embattled oilfield surveyor that’s lost more than half its value in a year, plans to issue €350m in new shares to strengthen its balance sheet.

While backing the proposal, shareholders said they’re reluctant participants and will demand a discount.

Oil at ? Morgan Stanley says yes, if the dollar keeps gaining https://t.co/lt2NRiNVro pic.twitter.com/jzHsZ7snUQ

— Bloomberg (@business) January 11, 2016

“When you have a capital increase on such a depressed stock, you have a gun to your head,” said Francois Chaulet, chief executive of asset manager Montsegur Finance, which has about €400m under management, including CGG shares.

“You have no other choice but to participate if you don’t want to be fully diluted.”

Crude prices have tumbled as slowing growth in China, the world’s biggest energy user, compounds a global supply glut.

Oil producers have responded by deferring projects and demanding lower prices from the firms that conduct their seismic surveys, operate their drilling rigs and manufacture pipelines.

That’s left many such providers grappling for funds to ride out the slump.

Norwegian oilfield surveyor Electromagnetic Geoservices last year opened a $32.5m (€29.8m) capital increase at a discount to the “theoretical ex-rights price” of as much as 24%, while Norwegian support-vessel operator Siem Offshore sold about $100m of new shares at a 14% markdown.

CGG will probably resort to a discount of at least 15% to 20%, and “won’t be the only one” to raise new capital, said Jean-Francois Arnaud, a fund manager at Talence Gestion, which has €500m under management including CGG stock.

The firm may not use all its CGG subscription rights, he said.

Italy’s Saipem unveiled a plan in October to boost its finances by selling €3.5bn of new shares.

Société Générale said last month there is a more than a 60% chance that Seadrill will sell new shares by 2018 and a more than 50% chance that BW Offshore will follow suit.

The odds for such a move at Vallourec and Bourbon are 50/50, analyst Guillaume Delaby said in a report.

The revenue of 17 leading European oil-services firms will be 25% lower in 2017 than in 2014, said Bernstein’s Mr Green.