Stock sales by two North American oil-and-gas producers saw the sums raised these deals this year to record levels, while cementing the southwestern Permian Basin as the US oil patch’s hottest region.
Denver-based driller QEP Resources Inc. and Canada’s Birchcliff Energy Ltd., and announced offerings late Tuesday bringing more than $20 billion in North American oil-and-gas company share sales this year. According to a Wall Street Journal analysis of Dealogic data, this figure tops the current record by approx. $19 billion raised in follow-on stock offerings where companies that are already public sell new shares for oil and-gas producers for all of the previous year.
The share-sale activity, that’s the result of a rebound in oil prices, shows that stock investors have faith that crude prices are not going to falter again. In addition, lately many of the companies selling shares are using the cash to acquire land, which is a growth move for investors that will dull the sting when they add more shares.
Along with QEP’s $367 million share sale, the company announced that it is buying about 9,400 acres of Permian Basin drilling property in West Texas for a cost of $600 million.
Analysts said QEP’s Permian acquisition represents the highest price paid for such assets. In fact, the company may be overpaying in order to boost its holdings.
Tudor, Pickering, Holt & Co., the Houston investment bank, puts the price/acre somewhere between $55,000 – $60,000. This establishes a new high watermark in the basin, where many recent deals have been around $30,000/acre. The price means there’s not much upside.
QEP did not respond to requests for a comment. The company’s chairman and CEO, Chuck Stanley said in a statement, “the acquisition broadens our footprint in a world-class crude oil basin and it will boost QEP’s oil production growth and operating efficiency. QEP’s shares fell 5.9%, to $18.19, on Wednesday, slightly below the offering price.”
A Permian focus for energy companies has appealed to investors, even with the roughly 50% drop in oil prices over the past two years.
Even with low commodity prices companies have said drilling can be profitable there because stacked layers of energy-bearing rock below the surface let large enough volumes of oil and gas come from each individual well. Of the dozen independent US energy production companies whose shares have gained value over the last year, came to an end Wednesday, and seven operate mostly in the Permian.
Meanwhile, in another signal of renewed expectancy of shareholder enthusiasm for oil, Centennial Resources Development Inc., drilling on 42,500 Permian acres in West Texas, announced in a regulatory filing late Wednesday that it is planning an initial public offering. According to Dealogic, there has been no oil producer that has debuted on a major US stock exchange since June 2014.
Last year the share-sale boom for energy producers accelerated, while these companies were dealing with the sharp fall in oil prices. Mainly they sold stock to boost their cash holdings and pay down their debt. Buyers on some deals found out that they were on the losing end as share prices fell alongside the price of oil.
In 2015, two companies, Goodrich Petroleum Corp and Emerald Oil Inc. sold new stock, but now they have filed for bankruptcy protection this year, which will likely wipe out shareholders.
This year, as oil prices recovered, in 2016 up 33% – stock offerings are being used to aid in paying for acquisitions. Birchcliff sold more than $500 million stock this week as it has agreed to buy drilling fields in northwest Alberta from Encana Corp. On Wednesday, Birchcliff’s shares fell 5.6%, to 6.42 Canadian dollars ($5.01), which is just slightly higher than the offer price.
Currently, Antero Resources Corp and Pioneer Natural Resources Inc. are among the largest US producers of oil and gas. To improve holdings in some drilling areas, both sold large issues of stock. Pioneer sold about $827 million of shares to add to its Permian Basin holdings, its primary operating area. Antero sold $762 million of stock to add land in West Virginia portions of the Marcellus and Utica shales.
A North American energy producer, Suncor Energy Inc. had the largest stock offering this year, accounting for more than 10% of the year’s total proceeds, which used some of its June 7 proceeds from its $2.2 billion offering to bolster its stake in a big Canadian oil-sands venture, referred to the Syncrude project.
On Wednesday on the New York Mercantile Exchange, August delivery crude fell 72 cents, or 1.4%, to $49.13 a barrel. Though oil prices have come down since their 2016 high this month, they are still up 87% from a 52-week low reached in February.
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