Oil producer Imperial Energy has positioned itself for a $600 million rights issue after struggling to secure debt financing for future drilling work.

The FTSE 250 group, which operates in Russia and Kazakhstan, has struck an equity financing deal with investment banking groups Hoare Govett and Merrill Lynch. They have agreed to underwrite a rights issue of up to $600 million, with a 1 July deadline. News of the standby facility knocked its share price down by 20% to £10.13.

Imperial said it has decided to undertake a 'material equity issue' after other debt financing options proved difficult to secure because of the current state of the debt markets and the company's relatively short history of production.

'We are disappointed that the current state of the debt markets has prevented us from funding our development programme as we had planned, but we have now put arrangements in place independently of the banks to fully fund our existing long term plans to the point where we should generate positive cash flow,' said chairman Peter Levine.

Imperial needs $350 million for this year's work programme and $250 million for 2009. It insisted that production targets of 25,000 barrels of oil per day remains possible by the end of 2008, rising to 35,000 barrels by the end of next year – despite disappointing volumes over the past two months.

Technical and logistical issues cut the group's average production in the first quarter to around 7,000 barrels a day but Imperial believes output will 'significantly bounce back' in April.

Levine shocked the market in January by cashing in over £25 million worth of shares. The news came just two months after Russian energy giant Gazprom scrapped plans to buy a 25% stake in the business.

Imperial also said in January that it may spin off its oil services arm into a separately-listed vehicle. The business is thought to be worth $300 million.