2017 could be a banner year for oil and gas companies who are looking for fresh equity. According to Tudor Pickering Holt & Co., as many as 40 oil and gas companies could launch IPOs in the New Year, as rising oil prices spark interest in new drilling.
The two-and-a-half year oil bust has burned a lot of investors, with a long list of companies declaring bankruptcy and many more shareholders losing their shirts from falling share prices. At the same time, investors that timed the rebound just right, jumping into the market earlier this year when oil prices dropped below $30 per barrel, could have made a pretty penny.
Now everyone is much more optimistic, hoping that there is more room to run. The industry has consolidated and with high-cost producers forced out of the market and healthier companies on much sounder footing, equity markets are salivating again at potential new offerings. Tudor Pickering's CEO Maynard Holt told Bloomberg that 2017 could bring IPOs up and down the spectrum, from new upstream drillers to pipeline companies.
"The number of companies expressing interest in going into this window is really high, and the number of investors saying we'd like to see something different is really high," Holt said.
If Holt is correct, and the number of new IPOs for oil and gas reaches somewhere around 40, that would triple the total for 2016. This year only 13 companies went public, offering shares worth about $2.23 billion, the lowest level since the financial crisis in 2009. As recently as 2014, when oil prices traded in triple-digit territory for much of the year, there were 44 IPOs worth $14.15 billion.
On top of rising oil prices, the industry expects the friendliest regulatory regime in recent memory. President-elect Donald Trump is seeking to stack government agencies with industry friendly people: at the EPA he chose Oklahoma Attorney General Scott Pruitt, who has promised to dismantle environmental regulations; Rep. Ryan Zinke was chosen for Interior Department, where he could open up public lands onshore and offshore for more drilling; and of course, ExxonMobil CEO Rex Tillerson is slated to lead to the State Department where he might press U.S. oil and gas interests abroad.
In other words, the stars are aligning for a great year for an upstart oil and gas company to go public. Maynard Holt says that there will be particular interest for midsized companies, with valuations between $2 and $4 billion, and for those that are concentrated in the Permian Basin.
"It feels like we've entered a good window where OPEC is now being cooperative, the regulatory talk feels positive and the financing markets feel open," Holt said. "You could see a lot of capital raising in that window."
By Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com More