By Tsvetana Paraskova
The oil price crash has left energy companies scrambling to shore up balance sheets and streamline costs. But the recent recovery of crude prices has instilled cautious confidence among oil and gas firms that they might be able to raise capital for expansion via initial public offerings (IPOs).
After two years of near zero activity in the energy IPO market, new research by Simmons & Co has shown that there are plans for more than 20 oil and gas share listings, The Street reports. With the price of oil holding above $50 for more than three months now, it looks like institutional investors and private equity firms believe the time has come to return to financing growth in the oil and gas sector, which has had a rough two years in the downturn.
It took the industry two years and two months to see the first exploration and production (E&P) IPO since the start of the price slump, with Extraction Oil & Gas (NASDAQ:XOG) going public in October last year. This was the first such transaction since Independence Contract Drilling (NYSE:ICD) launched its IPO in August 2014. Extraction Oil & Gas' IPO was followed the a month later by that of WildHorse Resource Development (NYSE:WRD), an independent oil and gas field operator focused on the Eagle Ford shale play in Texas.
Other oil and gas, oilfield services and energy companies also followed suit in a sign that the industry is returning to the stock market hoping for high valuation of its assets. "Investor response was cautiously discerning, yet encouraging," investment bank GulfStar Group said in its Energy Outlook 2017, noting that it expects other private equity-backed companies to launch IPOs in the first half of this year.
The first IPO on the NYSE this year was one of an oilfield services company -- Keane Group (NYSE:FRAC) -- whose shares started trading on Jan. 20. Jagged Peak Energy (NYSE:JAG), an independent oil and natural gas company focused on the acquisition and development of unconventional oil and associated liquids-rich natural gas reserves in the Southern Delaware sub-basin of the Permian, launched its IPO on Jan. 27. The company said it would be using part of the net proceeds to finance a portion of its 2017 capital program. Kimbell Royalty Partners (NYSE:KRP) followed in February. Kimbell Royalty Partners is an oil and gas mineral and royalty limited partnership that owns acreage in major U.S. onshore basins, including more than 29,000 wells in the Permian.
Out of the 16 IPOs on the New York Stock Exchange so far this year, 25%, or four IPOs, were launched by energy companies, IPO Boutique's 2017 IPO Industry Breakdown shows. Those were Keane Group, Jagged Peak Energy, Kimbell Royalty Partners, and Ramaco Resources (NASDAQ:METC) -- a coal company with mines in West Virginia, Virginia and Pennsylvania. And more IPOs are in the works, according to analysts.
Companies outside the U.S. are also seeking access to the stock market. Canada may see its biggest oil and gas IPO in more than two years. Fracking solutions provider STEP Energy Services last month filed a prospectus seeking an IPO. According to Bloomberg, STEP Energy Services -- which is seeking to raise US$149.3 million (C$200 million) -- could be the largest IPO in the Canadian oil and gas industry since Seven Generations Energy (OTC:SVRGF) raised US$695.7 million (C$932 million) back in October 2014.
According to GulfStar Group's energy outlook for this year, the resurgence of capital markets and M&A activity point to a gradual return of risk appetite that had been largely unseen in the industry for more than two years. The three main drivers for improved industry conditions this year would be commodity price stability, higher efficiency, and rising global energy demand, GulfStar reckons.
Judging from the return of IPO activity, after more than two years of depressed oil prices and industry outlooks the energy sector -- oil and gas in particular -- is growing cautiously optimistic that the worst of the downturn is over.
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