Energy Sector Is The Exception A In Lackluster IPO Market

In more ways than one, the IPO market isn't quite what it used to be a decade or two ago. The proportion of U.S. companies that choose to go public has been on a steady decline for more than two decades now, with startups often opting to sell out to bigger firms or remain private. Many observers have laid the blame for this unfortunate trend squarely on increasing red tape including rising regulatory and disclosure costs. Indeed, the number of public companies listed on U.S. stock exchanges has declined by nearly 50% from its peak in 1996, despite a dramatic increase in aggregate market capitalization.

This trend does not appear to be moderating, with the number of new filings in the IPO market trending down for most of 2022.  

That said, the energy sector is proving to be a different beast. Bloomberg has reported that four companies from the energy sector have filed for IPOs in the current month, effectively tying with July of 2019 for the most in more than five years. 

Here's a rundown of this month's filings:

• MN8 Energy Inc--MN8 Energy, Inc .(MNX) operates as a renewable energy company, and offers solar energy generation and storage solutions. MN8 Energy serves customers in the United States. hMN8 Energy has filed to raise $100 million in an IPO of its common stock, according to an S-1 registration statement.
• Solarjuice Co Ltd--Solarjuice Co., Ltd (SJA) distributes renewable energy equipment. The Company offers solar PV panels, inverters, components, and complete solar systems. Solarjuice serves customers in Australia. Solarjuice has filed to raise an undisclosed amount in an IPO of its ordinary shares, according to an F-1 registration statement.
• ASP Isotopes Inc--ASP Isotopes Inc (ASPI) operates a pre-commercial stage advanced materials company. The company focuses on production of high value and low volume isotopes for medical, nuclear power, and other industries. ASP Isotopes serves customers worldwide.ASP Isotopes has filed to raise $30 million in an IPO of its common stock, according to an S-1 registration statement.
• Trio Petroleum Corp.--Trio Petroleum Corp (TPET) operates as an oil & gas exploration firm with leasehold interests in Monterey County, California. Trio Petroleum Corp. has filed to raise an undisclosed amount in an IPO of its common stock, according to an S-1 registration statement.

  The few energy companies that have listed so far this year have been a mixed bag. Energy storage systems manufacturer NeoVolta Inc. (NASDAQ: NEOV) saw its shares tumble 13% in its first day as a public company. However, the shares have managed to recover and are currently trading 23% above the IPO price.

Shares of Excelerate Energy (NYSE: EE), an LNG solutions provider, climbed 12% on IPO day but have pulled back and are currently trading just 1.9% above IPO price.

Related: Oil Prices Are About To Reverse Course

ProFrac Holding Corp (NASDAQ: PFHC) is a vertically integrated and energy services company that operates through three segments: Stimulation Services, Manufacturing, and Proppant Production. The company went public on May 13 2022 but has failed to capture the imagination of the investing universe. PFHC shares closed just 0.6% above their offer price on Day 1 but have since slipped 5.9%.

Oil & Gas M&A

MKM Holdings LLC analyst Leo Mariani has told Bloomberg that despite setting records, energy IPOs are still few and far between mainly because private companies are choosing to sell to larger competitors, instead of going public themselves. He has also noted that oil and gas producers are still deeply discounted, making new IPOs less attractive than takeovers.

Indeed, energy analytics firm Enervous has reported that deals by private equity firms have been seeing a significant uptick as they bought assets that oil companies deemed as non-core to their development plans. These assets tended to lay outside oil-prolific areas like the Permian Basin of West Texas and New Mexico.

"Private equity still has dry powder for deals. They are using this to target assets being tagged as non-core by public companies. Once you step out of the core of the Permian Basin and a few other key areas, competition for deals drops, and these positions are often available at buyer-friendly price points," Dittmar has remarked.

Further, private equity is turning to a lender of last resort for fossil fuel companies. Whereas the likes of GS have cut financing to fossil fuel, the massive private equity industry is happily taking their place. According to a recent analysis from the Private Equity Stakeholder Project and Americans for Financial Reform Education Fund (AFREF), the eight largest buyout firms have put nearly as much money into coal, oil and gas as the big bank.

According to the nonprofit groups, the PE firms, which include Apollo Global Management, Blackstone Group, Brookfield Asset Management, Carlyle Group, KKR and Warbug Pincus, collectively oversee $216 billion worth of fossil-fuel assets--on par with the amount of money that big banks put into fossil fuels last year.

Another surprising find: the 10 largest private equity funds have  80% of their energy investments in fossil fuels.

"The billions of dollars private equity firms have deployed to drill, frack, transport, store, refine fossil fuels and generate energy, stand in stark contrast to what climate scientists and international policymakers have called upon to align our trajectory to the 1.5 degrees Celsius warming scenario," states a report cosigned by major climate groups including Greenpeace, Natural Resources Defense Project, Sierra Club and the Sunrise Project. 

By Alex Kimani for Oilprice.com

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