Wall Street banking on oil recovery in flurry of shale stock deals

HOUSTON – Stock-market investors have poured nearly $13 billion into U.S. oil companies trying to profit from the surge in crude prices, in a sign the market is convinced the worst of the oil bust is over.

After 29 energy stock sales this year, Wall Street’s bet is paying off. Share prices for U.S. shale drillers including Houston’s Marathon Oil Corp. and Newfield Exploration have climbed by an average 45 percent, as a shrinking global oversupply has pushed oil prices above $47 a barrel.

Investor appetite for oil and gas stocks is still healthy even after record equity offerings in the first quarter. They’ve snapped up $2.6 billion in shares in recent weeks, banking on possibility that crude prices hit bottom in February at $26 a barrel and have started to recover.

“People decided it was time to invest,” said Rob Santangelo, an investment banker at Credit Suisse.

Goldman Sachs, which had previously predicted crude prices could fall as low as $20 a barrel, now says oil could hover around $50 a barrel in the second half of the year.

Oil-production outages in Canada and Nigeria have drained the world’s oil glut, putting the oil market into a supply deficit “much earlier than we expected,” Goldman said earlier this week.

Rising oil prices would help ailing U.S. drillers patch up their battered balance sheets, and it could also spark a flurry of stock deals, Santangelo said, and that could help them start to rebuild the shale operations they’ve dismantled.

If investors can keep making money buying oil stocks, oil companies could ultimately raise $15 billion to $20 billion from stock sales this year, if not more, Santangelo said.

“After you’ve had a significant move in the commodity and the stocks, it does create a new set of potential issuers,” he said. “But ironically we’ve had the most active period after a sharp fall in commodity prices.”

Energy stocks have surged since February. Pioneer Natural Resources, which sold $1.6 billion in equity earlier this year, has seen its shares climb 42 percent. Shares of Devon Energy, Marathon Oil and Newfield Exploration have climbed 80 percent, 67 percent and 69 percent, respectively, since they sold shares.