Pengrowth Energy Corp. shares sank nearly 4 per cent on Tuesday after the company said it would pay higher interest costs and grant bondholders a security on its assets to ease stringent debt obligations.
Calgary-based Pengrowth said after markets closed on Monday that it had agreed in principle with a majority of noteholders to waive key financial covenants tied to its debt for up to two years.
In exchange, Pengrowth will pay a 2-per-cent higher interest rate and give debtholders security over its assets. Its 2018 debt maturities remain unchanged.
That deal is contingent on Pengrowth reaching a similar agreement with a syndicate of banks that would see its credit facility slashed to $400-million from $1-billion, and possibly to $330-million pending further asset sales. Pengrowth said it expects to finalize both agreements in the third quarter.
The moves are the latest steps taken by Pengrowth as it seeks to address high debt levels that have stretched its finances and weighed heavily on the shares through nearly four years of downturn.
Since the start of the year, the company has sold $827-million worth of assets, with proceeds aimed at reducing leverage. Total debt stood at $1.06-billion as of June 30, down from $1.68-billion at the end of last year. Its remaining assets include the steam-driven Lindbergh oil sands project and holdings in the Groundbirch Montney natural gas play.
Several analysts said on Tuesday the relaxed debt obligations will give the company breathing room while noting it will still struggle to generate cash under the current outlook for future oil prices.
Indeed, Pengrowth is seeking relief as U.S. crude languishes under $50 (U.S.) a barrel, forcing producers to cut already meagre budgets and delaying a recovery many analysts had expected would be well under way by now.
"This is a steep price to pay, but reflects the company's challenged financial situation, notwithstanding management's efforts to improve leverage ratios through extensive asset sales," Barclays PLC analysts, led by Grant Hofer, said in a note to clients.
The shares on Tuesdayclosed down about 3.95 per cent at 73 cents (Canadian) on the Toronto Stock Exchange. It's a far cry from levels hit in 2014, before the collapse in global oil prices, which has pressured shares of even the sector's largest companies.
In a sign of its sinking fortunes, Pengrowth said the New York Stock Exchange had issued a non-compliance order in May and warned that its stock would be delisted from the bourse by Nov. 16 unless the shares climb above $1 (U.S.)
The company said the notice is the result of the 30-day average closing price of the shares falling below that threshold, and that a delisting would not affect its listing in Toronto. On Tuesday, the shares fetched around 60 cents in New York.
Pengrowth late on Monday reported a second-quarter loss of $242.4-million (Canadian) or 44 cents a share, versus a year-ago loss of $173.4-million or 32 cents. The results were affected by a $223-million after-tax impairment tied to the sale of its Olds/Garrington property.
Production in the period averaged 49,349 barrels of oil equivalent a day (boe/d). That's down from 56,735 boe/d a year ago, with the drop attributed to a combination of asset sales, natural declines and maintenance activities that crimped volumes. The company's production target and budget for the year are unchanged.