Wall Street’s love affair with energy heats up as rigs soar amid confidence
WALL Street is throwing the most money at US energy companies since at least 2000 amid growing confidence that the industry is emerging from the worst downturn in a generation.
Energy firms raised US$6.64 billion (US$30 billion) in 13 equity offerings in January, drawn in by a rich combination of oil prices consistently above US$50 a barrel and a rush to drill that’s doubled the rigs in use in the US and Canada since May.
The biggest change from last year: Oilfield servicers that provide the rigs, fracking equipment and sand used by drillers.
The most beaten-down sector during a two-year price rout, servicers made up 22 per cent of the equity totals in January, compared with five per cent all last year. “The mood is absolutely different,” Trey Stolz, an analyst in New Orleans at the investment banking firm Coker & Palmer Inc., said by phone.
“Go back to a year ago and the knife was still falling. But today, it feels much, much better.”
Already, companies such as Weatherford International are able to charge more for the use of their equipment and services as explorers race to open the spigots in the fertile Permian Basin of West Texas and other US shale fields, according to Krishna Shivram, Weatherford’s interim chief executive officer.
“We’re seeing signs of improved pricing of roughly 25 per cent on average, versus December levels,” Shivram said last week on a conference call.
“There is considerable optimism.”
Energy companies in the US far outpaced the rest of the world, raising more than twothirds of the US$9.41 billion in new or additional stock last month, according to data compiled by Bloomberg.
New investments emerged around the globe, from the share sale of Thorney Technologies Ltd. in Australia to SD Standard Drilling Plc in Cyprus.
US benchmark West Texas Intermediate crude traded above US$52.50 a barrel on Thursday, up more than 20 percent from last year’s average. The services sector was among the hardest hit during the downturn, slashing prices by more than a third and contributing the greatest chunk of the 440,000 jobs cut globally in that time.
Now a new dynamic is at play, evidenced by the emergence of Keane Group, a Houston-based provider of fracking services, as one of the first initial public offerings for the US in 2017.
Keane raised US$508.4 million on Jan 20.
Though it may be surprising that an industry as volatile as hydraulic fracking produced an IPO in such a manner, consider that trading began on the day of President Donald Trump’s inauguration.
The incoming president made energy independence a plank of his election platform and has promised to roll back regulations on the drilling industry. — WP-Bloomberg