Wall Street investors poured cash into nine U.S. shale drillers that issued new shares in December, the industry’s most active month in a record year for such offerings.
As OPEC struck international deals to curb oil production and crude prices surged last month, Diamondback Energy, Gulfport Energy Corp. and other U.S. drillers raised $3.3 billion, the fourth-highest monthly sum in 2016.
For the first time, some of the firms raising money, including Ring Energy and Matador Resources, both of Texas, said they’d use a portion of the proceeds to support capital investments in 2017. It’s a sign drillers are preparing for a more active year in 2017 after the oil bust held back industry activity for more than two years.
“It wouldn’t be surprising to see another wave of this (raising cash to fill 2017 budget gaps) in January,” said Jason Wangler, an analyst at Wunderlich Securities in Houston, noting dozens of small and mid-sized oil drillers will put out annual capital budgets in the next few weeks.
Beleaguered oil companies first turned to capital markets in late 2014 as crude prices tumbled below profitable levels for expensive shale patches. The $15.5 billion they raised from stock-market investors in 2015 somewhat eased the financial pressure of high debt loads that eventually led more than 100 North American exploration and production companies to file for bankruptcy.
In 2016, U.S. drillers raised a total of $31.3 billion in 71 secondary stock offerings, many of which are expected to bolster the industry’s financial ammunition as companies return to the oil patch with cash to buy more property and put more drilling rigs back to work.
These offerings surged to an all-time record in February when companies raised $6.9 billion in eight deals, around the time crude prices hit $26 a barrel, the lowest point of the year. Oil companies didn’t raise any equity in November, as jitters over OPEC’s Nov. 30 meeting in Vienna sapped the market’s appetite for risky oil company investments. But in December, the deals surged again as oil prices rose.
“There are some bigger deals getting done,” Wangler said, pointing to Diamondback Energy’s $1 billion raise to purchase acreage in West Texas and and Gulfport Energy’s $717 million raise for an acquisition in Oklahoma.