Equity markets still investing in shale oil producers as market looks for a bottom

Fuel Fix:

Wall Street is trying to bail out the shale oil industry. Again.

Energy executives at last week’s IHS Energy CERAWeek conference in downtown Houston worried that banks and the junk-bond market will stay tightfisted for a while even after oil prices recover, wary of an oil-production burst after getting burned by the oil-market crash.

But equity investors, less risk-averse than lenders, have poured $7.7 billion into 12 U.S. oil companies in a series of stock sales in recent weeks, egged on by signals that crude prices have bottomed.

“Capital markets have short memories,” said Bobby Tudor, chairman and chief executive of Houston investment bank Tudor, Pickering, Holt & Co. “They open when people start making money again.”

It’s shaping up to be a replay of the $13 billion equity infusion in the first half of 2015, when cash-strapped drillers sought to ease financial pressure amid anemic oil prices. The payoff for investors last year was short-lived: crude prices eventually crumbled again, and the S&P stock index for oil exploration and production companies has fallen 52 percent from a year ago.

Fast forward to December 2015. At first, only relatively healthy West Texas oil producers like Diamondback Energy, Parsley Energy and Pioneer Natural Resources could tap equity markets. But over the last few weeks, Wall Street has opened up to other drillers like Houston-based Newfield Exploration, Cabot Oil & Gas Corp. and Oasis Petroleum. So far, it has worked out for investors. The companies’ stock prices have increased by an average 7.6 percent, according to data compiled by Bloomberg.

On Monday, Denver-based QEP Resources announced plans to sell 30 million shares at $10 a share soon, for a $330 million raise, regulatory filings show.

“This could mark the beginning of billions of additional dollars to be raised in the coming weeks,” Tudor Pickering analysts wrote in an email to clients last week. “With strong post-deal stock performance stats so far this year and no end in sight for available sidelined capital, (it’s) hard to see what slows the process.”
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It is one of the advantages capitalism has over state-run operations.  State-run operations like Venezuela just are not good credit risks and Pemex is still recording multi-billion dollar losses.  Even Middle East producers are looking for equity players as they grind through their reserves.