Will 2017 Be The Year Of Energy IPO Revival?

Following two dismal years of near zero initial public offerings (IPO) activity in the energy market, 2017 is expected to be the year that sees oil and gas listings return to the center stage.

A Dry Spell for Energy IPOs

Oil’s horror show saw black gold’s price come down from some $110 per barrel in mid-2014 to a 12-year low of $26.21 in February last year as investors worried about the oversupplied market. The commodity’s collapse threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and pummeling producer’s profit margins. As oil sales floundered, producers and service providers got fewer revenues. To survive the period of weak profits, they scrambled to streamline costs while taking on more debt to shore up balance sheets. Some overleveraged companies were forced to declare bankruptcy, while  the sharp fall in share prices in others meant that a number of investors saw their investment dollars going down the drain.

However, the one positive to emerge from the oil bust was the wave of industry consolidation, with high-cost producers being washed out of the market in favor of healthier companies that are on much sounder footing. Throughout the downturn, energy players worked tirelessly to cut costs down to a bare minimum and look for innovative ways to churn out more oil from rock. And they managed to do just that by improving drilling techniques. With these efforts, many oil companies have repositioned themselves to adapt to the new $50 oil reality and even thrive at those prices.

The eventual ‘survival of the fittest’ has left only the fundamentally solid companies – having deep pockets – with their heads above water. And equity investors have been eager to tap some of them in the form of potential new offerings.

OPEC-Led Uptick Broke the IPO Drought

A historic OPEC production cut agreement, together with help from non-OPEC producers and slashing investments (in existing and new wells) saw oil prices more than double from their February lows to end 2016 around $54.

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