April 7, 2017 – The stream of U.S. energy companies going public at the start of 2017 has dried up on concerns over the future direction of oil prices, but private buyers seeking mergers and acquisitions are ready to take advantage of the volatility to secure cheap deals.
Texas-based FTS International and Select Energy Services are among six U.S. energy companies that filed for listings in the first quarter but delayed, even after receiving the green light from local regulators.
Four U.S. oil and gas companies went public in January, when more stable crude prices gave them confidence to tap into investor demand after a barren listings period that followed a slump in U.S. crude prices in late 2015.
Share prices for that quartet tumbled 14 percent on average by March 31, as crude prices retreated to end the first quarter 6.5 percent lower, the biggest quarterly decline since late 2015.
Two Canadian oilfield services firms, STEP Energy Services and Source Energy, pulled their March public offerings due to adverse market conditions, further undermining the case for energy IPOs.
“There was talk of upwards of 20 IPOs getting ready to go at the start of the year, but now everyone is slowing down their processes as share prices have gone down as rapidly increasing production raised concerns about how fast and how far the recovery in oilfield activity would go,” said Brian Williams, managing director at Carl Marks Advisors.
Most are in the oilfield services sector, with many looking to relist and raise fresh capital after going through bankruptcy proceedings during the last oil price downturn.
With the sharp cost cutting by oil producers in the last 18 months continuing to hurt profits at service firms, companies that listed in 2017 often did so based on expected performance for coming years. Sliding crude prices in March undermined hopes for future growth.
“The market was looking past current conditions to 2018 and 2019 projections with valuations of eight or nine times 2018 EBITDA (earnings before interest, tax, depreciation and amortization), on the assumption that if you wanted to get in ahead of the future upside, you’d have to pay now,” said Williams.