Battered U.S. Oil Firms Raise Most in Equity Sales Since `99

  • Energy companies announced $9.2 billion in stock offerings
  • Biggest share sale binge for sector since at least 1999

Wall Street investors are throwing a lifeline to the embattled U.S. energy sector.

U.S. oil and gas companies from Marathon Oil Corp. to Weatherford International Plc have announced plans to raise about $9.2 billion in new equity, the most year-to-date since at least 1999, according to data compiled by Bloomberg.

"Billions of dollars of dilutive equity continue to roll in with seemingly no end in sight," Houston-based oil investment bank Tudor, Pickering, Holt & Co. said in a research note.

Until only a few weeks ago, bankers, executives and investors had assumed the capital markets were closed to the energy sector, which is laboring under oil prices that have fallen almost 70 percent from the summer of 2014. Then, in early January, a handful of companies with assets in the prized Permian Basin in Texas successfully tested the waters. Now "the window is clearly open" for almost everybody, Tudor, Pickering, Holt & Co. said.

Pioneer Natural Resources Co.’s $1.6 billion offer on Jan. 5 was followed a week later by Diamondback Energy Inc.’s announcement of a $250 million sale. Pioneer Chief Executive Officer Scott Sheffield said he raised equity fearing lower oil prices. "We wanted to protect the company for at least a two-year period," he told the Credit Suisse Energy Summit in Vail, Colorado, last week.

Capital Programs

Some of the biggest names in American energy, including Hess Corp. and Devon Energy Corp., have each offered more than $1 billion in new equity, while smaller companies like QEP Resources Inc. and Synergy Resources Corp. have also managed to successfully raise funds.

The equity raising could resonate beyond the U.S. oil-patch and Wall Street, as fresh capital could lead to higher spending and a shallower drop in U.S. oil production than currently expected, and hence to a longer period of low oil prices.

Diamondback and Marathon both said their equity issuances would help provide liquidity to fund their capital programs. John Hess, chief executive officer of Hess, said he wanted extra cash to maintain a strong balance sheet, and equity offerings are more receptive than debt with the Bank of America/Merrill Lynch High Yield Energy Index rising to a record effective yield of 21 percent on Feb. 11.

"So now, we had this additional development cost," Hess said at the Credit Suisse summit. "You know what’s going on in the debt markets. Debt markets have basically seized up for high yield."

Bottom Found

Weatherford, the world’s fourth-largest oilfield services provider, was the latest to throw its hat in the ring, offering 100 million shares at $5.65 a share, giving the underwriters a 30-day option for up to 15 million more.

The company intends to use the net proceeds for general corporate purposes, including the repayment of existing debt. JPMorgan and Morgan Stanley will act as joint book-running managers of the offering.

In a sign of investors’ appetite to support U.S. oil and gas companies, most of the firms that have raised equity so far this year have increased the size of their offering within hours of their announcement. With oil prices recovering, share prices have also risen from the offering, further enticing other producers to follow suit.

West Texas Intermediate, the U.S. oil benchmark, closed at an eight-week high of $34.40 a barrel on Tuesday, up about 30 percent from this year’s low in February. Prices on Wednesday slipped 0.1 percent to $34.28 a barrel as of 10:12 a.m in New York.

“People are seeing oil prices start to bounce back, and they’re starting to think that maybe we’ve found a bottom and can turn it around,” said Carl Larry, head of oil and gas for Frost & Sullivan LP. “These share offerings are an opportunity for institutional funds to get into the energy play.”

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