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Oil prices set to fall: Santos share price faces bad news

Just as WTI crude oil prices tumble to lows around US$40 per barrel Santos Ltd (ASX: STO) is attempting to raise capital in an attempt to beef up its balance sheet.

Today the group announced that it had successfully completed the retail shortfall bookbuild for around $585 million worth of shares that were not taken up by retail shareholders under the original offer.

The offer was on a 1 for 1.7 basis meaning retail shareholders were being asked to tip substantial amounts of new funds into a business weighed down by debt just as the outlook for energy prices appears to be darkening.

Just 57% of rights were taken up by retail shareholders in the offer as many evidently concluded going close to doubling down on Santos perhaps wasn’t a great wealth-building strategy.

Many in the market also questioned why Santos’s management waited so long to raise capital as its share price tumbled from $9.08 a year ago to a diluted $4.03 today.

Back in October Santos also announced that it had rejected a takeover offer for $6.88 per share from a mysterious consortium of ultra-high-net-worth individuals under the banner of Scepter Partners. The bid saw the share price spike at the time as many in the market took the opportunity to offload shares at higher prices as “the bid” created a short-term share price rise.

Another leveraged play on the oil price is Senex Energy Ltd (ASX: SXY), which currently trades for just 14 cents and has collapsed in value over the last year. Given its stronger balance sheet Senex may represent a smarter bet for anyone bullish on oil prices. However, the consensus is that oil prices will not rebound anytime soon due to US shale technology and softening global demand relative to the past….

This means investors may be better off looking elsewhere…

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

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