Emerald Oil, Inc. (EOX) announced an equity offering to raise $92.5MM.

The funds will be used to reduce $53.9MM of debt, finance a $14.3MM leasehold acquisition in McKenzie County, North Dakota and help fund a $100.6MM capital program over the next 18 months. We have assumed that the shares will price at $1.00/SHARE, resulting in an increase of 97.9MM shares for EOX.

The funds from the offering will allow EOX to de-lever its balance sheet and accelerate its transition from a non-operator to a more traditional operating E&P company. The company also will acquire 4,500 net operated acres in a highly prospective area of the Bakken play, where well results from nearby wells have been impressive. While these are positive developments, we are lowering our NAV and price target from $2.00 to $1.50 to reflect the dilutive effect of the offering.

The proceeds from the offering will be used to retire the $18.4MM Hartz loan and a $15MM “Tranche C” bridge loan from Macquarie Bank, both of which mature in November. Additionally, we have assumed that the company will retire a $2.5MM loan from Emerald Australia, and a $15MM “Tranche A” and $3MM “Tranche B” credit facility from Macquarie Bank.

Based on mid-year PV-10 proved developed reserve estimates of $57.5MM, it would seem that the firm has reserve-based collateral that would justify an increase in the borrowing base of the more traditional “Tranche A” credit facility from $15MM to possibly $30MM.