WRAPUP 2-Oil explorers face funding crunch

* Afren raises around $125 mln from share placing

* Regal rebuffed by bank, seeks other options

* Regal eyed by Russian companies

* Afren shares closed 0.65 pct lower

* Regal shares closed down 4.31 pct (Adds LUKOIL VP denying knowledge of Regal talks)

By Tom Bergin and Julie Crust

LONDON, April 15 (Reuters) - European oil and gas explorers Afren Plc AFRE.L and Regal Petroleum RPT.L are turning to existing shareholders and industry partners to fund oil and gas projects after banks shied away from lending to the sector.

Afren said it is raising about $125 million via a share placing to back the development of its Ebok field in Nigeria.

Regal said talks with Australia's Macquarie MQG.AX on a $100 million loan had ended and it was exploring other options including non-traditional lenders and the potential sale of a stake in its core Ukrainian assets.

Industry sources said Russian oil companies TNK-BP TNBPI.RTS, which is half-owned by Britain's BP Plc BP.L, and LUKOIL LKOH.MM had already expressed an interest, and could even make a bid for the whole company.

LUKOIL Vice-President Leonid Fedun told reporters in Moscow he was unaware of any talks on Regal. [ID:nLF585260]

Traditionally, oil companies fund exploration from cash. Once reserves are found, a field’s development is typically underpinned by a mixture of debt and equity finance.

As oil prices soared toward $150/barrel last year, banks were eager to lend against oil and gas in the ground as security, but since then, reserves-based lending has dried up or become prohibitively expensive.

“(Afren) looked at a number of ways to fund Ebok and this was the preferred method of the existing shareholders,” Dougie Youngson, oil analyst at Ambrian said in a research note.

Financing has become the key concern for the exploration sector, while investors even fret lower oil prices may force international majors like Royal Dutch Shell Plc RDSa.L to pare back dividends to allow them to meet their investment budgets.

Regal’s statement that the Macquarie talks had failed prompted a 20 percent drop in its shares.

After the retreat of the banks, companies are increasingly turning to shareholders to fund investments.

Last month, British oil explorer Premier Oil PMO.L raised $250 million to fund the acquisition of North Sea oil fields while rival Tullow Oil TLW.L raised $550 million in January for the development of its African oil fields.

Where investors are confident in the quality of the company’s assets and the quality of management, they have willingly stumped up more funds.

The size of Afren’s capital raising -- half its market capitalisation -- represented a vote of confidence, analysts said, although the share sale pushed the company’s shares down over 10 percent at one stage.

After tapping shareholders for funds last year and increased worries about investment in Ukraine following an IMF bail-out and continued friction with Russia, Regal would find it harder to persuade shareholders to contribute more cash, analysts said.

Chief Executive David Greer has said that if no funding is secured in the coming months, he can put the company into “hibernation”, cancelling future drilling and living off Regal’s few producing wells, until debt and equity markets recover.

The company has significant gas reserves in Ukraine, where gas prices are expected to rise to European averages in coming years, so this strategy could work, industry executives said.

Afren shares closed 0.65 percent lower at 36.368 pence, compared with DJ Stoxx European oil and gas sector index .SXEP down 0.52 percent. Regal shares closed down 4.31 percent at 44.09 pence. (Additional reporting by Robin Paxton and Katya Golubkova in Moscow; Editing by David Cowell, Sharon Lindores)