(Repeats story published earlier on April 6, no changes)
By Clara Denina and David French
LONDON/NEW YORK, April 7 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, Thomson Reuters data showed.
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, according to Thomson Reuters data, 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
"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
Bankers said that lower IPO valuations and lingering caution
on oil prices would encourage energy companies to sell
themselves to private buyers instead.
Some are owned by distressed debt investors and hedge funds
that bought them out of bankruptcy and could still secure a
substantial profit even though valuations have declined in
Such a switch in focus should not be too difficult. Many IPO
processes have been run as dual-track, where concurrent attempts
to list and sell the company are made by advisors. Private
equity and similar investors seeking energy assets have adequate
"In the current market, when the IPO valuations start to
come down, if buyers are still optimistic, the sale proceeds
might be more attractive to sellers than what they would get in
an IPO," said Jeffery Malonson, a capital markets partner at
King & Spalding.
He noted the owners would also secure the benefit of a full
exit from their investment as opposed to a partial one through a
Companies could also use the delay in listing plans to bulk
up their own operations using acquisitions, which will mean they
have bigger and more valuable companies when they eventually go
This is particularly true for oilfield services and
equipment providers, which need to cut costs in the face of
stalling cash flows and shrinking capex, bankers said.
Improved scale was seen as one of the main drivers of
Schlumberger NV's agreement last month to form a $535
million joint venture with Weatherford International Plc
to deliver oilfield products and services for unconventional
resource plays in the United States and Canada.
While some could fund deals with their own reserves, others
will need to borrow cash. With banks likely reluctant to lend
substantial sums to recently-restructured companies, private
equity firms and other non-bank lenders could step in here as
well. However, terms for borrowers would be more onerous than
they would get at banks.
(Additional reporting by Jessica Resnick-Ault in New York and
Ron Bousso and Eddie Dunthorne in London; Editing by David