Due to falling prices in the oil and gas industry, one of the hoped-for trends in the energy sector has been mergers and acquisitions. Some even call this cannibalization. The hope had been that Whiting Petroleum Corp. (NYSE: WLL) would be the first serious buyout in the space. With Whiting conducting a deeply discounted capital raise, that hope now appears to be as dead as $100 oil.

Many reports had indicated Whiting was looking for a buyer. Then the hopes diminished after further reports signaled that Whiting would pursue asset sales. What should investors think when the company is raising $1.75 billion from the capital markets at a deep discount?

In an investor presentation on March 2, Whiting discussed its assets and plans for its North Dakota and Colorado operations, but it had little to say about its Permian Basin assets. As recently as last week, analysts were loosely trying to defend Whiting shares.

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Whiting announced that it aims to sell 35 million shares of common stock in conjunction with an offering in senior notes. The funds raised will be used to pay down other short-term debt that Whiting has accrued from its acquisition of Kodiak Oil & Gas Corp.

Tuesday morning, pricing for the offering was set at $30 per share, with total net proceeds of roughly $1.0 billion. As for the senior notes, there is a private unregistered offering for $1.0 billion, with the notes due in 2020. Also, there was a previously announced offering of $750 million of senior notes due in 2023.

24/7 Wall St. recently noted that Whiting’s Permian Basin assets are unlikely to find a buyer that wants to acquire anything more than a steady cash flow at low cost. Such a company probably cannot pay the kind of price that Whiting needs to give itself some breathing room, whether it is selling down some of its assets or perhaps going another route.

The way that the financing has been set up for the offering, as well as the senior notes on top of that, some investors might fear that Whiting is digging itself a hole — but it doesn’t look like they will strike oil.

First of all, by introducing 35 million new shares on the market, Whiting is diluting all of its current shareholders. Also by issuing senior debt, all the company has to offer to these shareholders is even more debt, with nothing new to show for it.

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Any company that theoretically might have been looking to acquire Whiting would be reconsidering at this point. Investors in Whiting seemingly would not be content with any at-the-market buyout, because they now will be far more diluted and likely will not get any premium at all for their shares.

Another thing that may be of concern is that J.P. Morgan was the sole underwriter for the offering. The firm actually initiated coverage of Whiting March 9, prior to the announcement of an offering, with an Overweight rating.

Sterne Agee saw the pressure coming prior to the announcement of the pricing for the offering. The firm also recommends that investors buy after the equity issuance. This is because the deal could leave Whiting with $500 million in cash on hand, an undrawn $3.5 billion credit facility and a manageable $568 million in free cash flow deficit from the second quarter through 2016. Basically, Whiting is swapping a 21% dilution to equity holders for the ability to fully pay down an estimated $2.4 billion of its borrowings.

However, Sterne Agee does note that “Pain will come Tuesday.” The firm reiterated a Buy rating, while acknowledging there could be more than normal volatility around the equity issuance. Sterne Agee set its price target for Whiting shares at $52 without knowing what the deal would formally price at, and again with the warning that pain would be coming.

Shares of Whiting were down 20.3% at $30.59 in morning trading Tuesday, in a 52-week range of $24.13 to $92.92. The stock has a consensus analyst price target of $45.84.

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