First Oil & Gas IPO in 2 Years Is Winner
13 October 2016 - 4:30PM
Dow Jones News
Investors flocked to the first initial public offering for a
U.S. oil and gas explorer in more than two years, signaling there
is still demand for shares of new energy companies despite an
extended period of low oil prices.
Extraction Oil & Gas Inc., a Denver-based exploration and
production company, sold 33.3 million shares late Tuesday for $19
apiece. The shares ended their first day of trading up 15% at
$21.85 on Wednesday, valuing the company at about $2.4 billion. The
last time a U.S. oil and gas company went public the price of crude
was more than double the $50 barrel level where oil has traded this
week.
Extraction operates on about 224,000 acres in Colorado's
Wattenberg Field, part of the larger Denver-Julesburg Basin, where
drilling activity has picked up slightly since June, according to
drilling rig data from Baker Hughes Inc.
The market's warm reception could help pave the way for other
oil and gas companies that have been weighing initial public
offerings, analysts and bankers say.
Closely held oil-and-gas explorers like Jagged Peak Energy LLC
and Brigham Resources LLC have been working with bankers and
lawyers to prepare their own IPOs while also feeling out potential
buyers for outright sales, The Wall Street Journal has
reported.
People familiar with both of those companies' plans say they are
more likely to go the IPO route given the strong valuations of
energy-exploration stocks have received lately. How Extraction
performs over time could help those companies and others decide
which route to take.
Energy has been the best performing sector in the S&P 500
this year, up 15.9%. Shares of many smaller exploration and
production companies have done much better, with more than 30 of
them up more than 30% this year. Shares of eight of those companies
have more than doubled.
Still, shares of many other energy producers, particularly those
perceived to have burdensome debt loads, continue to suffer from
low oil and gas prices that have made drilling in many regions
uneconomical. Some analysts have argued that exploration and
production stocks broadly are trading at prices that reflect much
higher oil prices than the $50 range where crude has traded
lately.
Energy investors also face uncertainty over whether members of
the Organization of the Petroleum Exporting Countries will agree to
limit their production at the group's next meeting in November. If
OPEC doesn't reach a pact, or fails to implement it, crude prices
could tumble.
Extraction's strong debut comes after a flurry of follow-on
stock offerings from oil and gas companies. North American
exploration and production companies have sold more than $45
billion of shares since the start of 2015 to bolster balance sheets
battered by the sharp decline in oil prices as well as fund
acquisitions of properties in the few regions where drilling has
remained economical at $50-a-barrel oil.
In many cases, those acquisitions were of closely held companies
that big investment firms had launched in recent years.
The last time investors were presented with an IPO from a U.S.
oil company, in June 2014, crude was trading at $106 a barrel.
Eclipse Resources Corp. raised about $820 million after pricing its
shares at $27, the low end of its expected range, and watched its
shares fall from there. Eclipse shares ended Wednesday at
$3.26.
Extraction's IPO price was above its expected range of $15 to
$18 and means hefty gains for its big Wall Street backers, Yorktown
Partners LLC, Och-Ziff Capital Management Group LLC, Blackrock Inc.
and Neuberger Berman Group LLC.
Write to Ryan Dezember at ryan.dezember@wsj.com
(END) Dow Jones Newswires
October 13, 2016 01:15 ET (05:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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