Continued stress in financial and commodity markets has been facilitating a lot of deal action since May 2009. Deals are getting done, and many of them are creative, and oversubscribed. But flexibility is required. (Cue Tom Cruise in Mission Impossible, dangling just above the floor while working on a laptop.) Thus began Sylvia Barnes' presentation at the Houston Energy Finance Group this week. Barnes, formerly with Merrill Lynch Petrie Divestment Advisors, became head of energy investment banking for SMH Capital in Houston in April. She advised that E&P companies needing to fund drilling, or shore up balance sheets, look at equity raises, asset or hedge monetizations, joint ventures and vendor financings--or all of the above. "Please don't hesitate to bite the bullet and issue some equity, whether public, private or hybrid," she advised, "even if it's a bit dilutive. In all my years in investment banking, I have never heard anyone say after the fact, 'Gee, I wish I hadn't raised any equity.'" Last July when energy markets peaked, E&Ps raised some $4 billion in upstream equity, but after that, the big drought began. In fourth-quarter 2009, pretty much nothing happened, an unprecedented slowdown in energy finance. But in 2009, some 22 public companies have issued equity. Sixteen were follow-ons, four were PIPEs and two were registered direct offerings. Since January 2009, when Whiting Petroleum Corp. became the first "hardy soul" to offer public equity, some $3.57 billion has been raised by E&Ps alone. The offering discount to the closing stock price--pre-announcement--has varied from 19.5% for Whiting, to 11% for ATP Oil & Gas, to a horrendous 52% haircut for beleaguered Delta Petroleum Corp. Most of the stocks are up now in the face of a general market rally, rising crude oil prices and investors rotating into energy. But investors also like the comfort of knowing that an E&P has better liquidity or longer-term debt. Since BPZ Energy Inc. issued a PIPE in February, its stock has risen 81.5%. "Monetizations are a beautiful thing in tough markets. You can reduce leverage, free up capital and get equity-type money, but not at equity-type rates," Barnes said. Recent examples include Berry Petroleum selling its East Texas midstream assets, and NGAS selling 50% of its Stone Mountain gas system in Appalachia for $28 million. Then there's XTO Energy, which gained $800 million in February when it unwound some hedges. "Think of JVs. In tough times, it's good to have a partner. This is known as using OPM (Other People's Money)." Barnes cited Quicksilver Resources' recent $280-million deal to bring Eni into its Barnett shale drilling program, Chesapeake Energy's multibillion-dollar deal with StatoilHydro in the Marcellus shale, and Whiitng's deal with a private partner in the Bakken shale for $107 million. These new JVs bring in cash and reduce drilling costs. In the end, it's time to shout, as Tom Cruise did: "Show me the money!" --Leslie Haines, Editor-in-chief, Oil and Gas Investor
Recommended Reading
Marketed: Paloma Natural Gas Eagle Ford Shale Opportunity in Frio County, Texas
2024-02-16 - Paloma Natural Gas has retained EnergyNet for the sale of a Eagle Ford/ Buda opportunity in Frio County, Texas.
Marketed: Robert L. Bayless Eight Well Package in Uintah County, Utah
2024-01-26 - Robert L. Bayless Producer retained EnergyNet for the sale of its eight well package in Uintah County, Utah.
Marketed: Kaiser-Francis Oil Mississippi Opportunity
2024-03-11 - Kaiser-Francis Oil Co. has retained EnergyNet for the sale of a Gilliland 34-1H opportunity in Monroe County Mississippi.
Marketed: Stone Hill 41 Well Package in Howard County, Texas
2024-02-16 - Stone Hill Exploration and Production has retained EnergyNet for the sale of a Midland Basin 41 well package (11 PDP wells, 5 WIPs and 25 PUD locations) in Howard County, Texas.
Marketed: Williston, Powder River Basins 247 Well Package
2024-03-11 - A private seller has retained EnergyNet for the sale of a Williston and Powder River basins 247 well package in Sheridan, Montana, Burke and McKenzie counties, North Dakota and Campbell County, Wyoming.