Why RSP Permian Inc (RSPP) Stock Was Down 11%

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What:Small U.S. independent oil and gas producerRSP Permian Inc stock was down as much as 11% in early trading, after announcing that it would issue 5 million new shares of its stock and sell them for $25.80 per share.

So what:This comes after a similar stock offering last year. Combined, the two stock offerings have diluted existing shareholders out of more than 10% of their ownership of the company. However, RSP Permian Inc's stock has fared better than that of many of its independent producer brethren since last summer:

RSPP Chart

RSPP data by YCharts.

Faring better isn't the same as doing well, however -- as you can see, its stock is still down 22% since June.

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Now what:The company intends to use the proceeds to pay off the balance of its revolving credit line, general business purposes, and -- get this --buy back common shares. I have to admit that the last bit seems a very bizarre use of a stock offering...

RSP Permian -- as a producer -- operates in the same cheap oil environment as every other producer, but does have some relatively compelling economics in its favor, as a low-cost producer. If you're looking to invest in a small regional-specific producer, RSP Permian isn't a terrible choice. Just acknowledge that oil prices could conceivably fall further, and that its stock is likely to remain volatile no matter what commodity prices do.

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The article Why RSP Permian Inc (RSPP) Stock Was Down 11% originally appeared on Fool.com.

Jason Hall has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.