Oil & Gas industry raised $186 billion through U.S. public offerings in 2016

PLS' Capitalize(TM) sees 2017 pace picking up on rebounding commodity prices, surge in M&A activity

HOUSTON, TX --(Marketwired - February 13, 2017) - PLS Inc., a leading Houston-based oil and gas research firm, announced that Capitalize™, its proprietary and comprehensive capital markets tracking platform, released a statistical review of capital markets activity for calendar year 2016 in which…

  • 2016 aggregate value of $186 billion across 346 bond and equity deals compared with $196 billion from 322 deals in 2015.
  • $53 billion in equity offerings and $133 billion in bond issuances by the U.S. energy sector in 2016.
  • Equity financing activity in Upstream sector surged 69% over 2015 offerings, while traditional equity issuers in the Midstream/MLP sector reduced equity offerings.
  • Upstream sector saw 80 equity deals at $31.7 billion (60% of equity deal amount offered in 2016) and 70 bond deals at $46 billion (35% of bond deal amount offered in 2016).
  • Slowdown in the IPO market, with only 6 energy IPOs last year in Upstream and Services sectors.
  • Virtually no MLPs went public in 2016 relative to the high levels seen in 2011 and 2014.
  • Banks earned $1.3 billion in aggregate fees for equity secondary offerings and IPOs on a total deal amount of $53 billion.
  • Issuing bonds earned banks $1.3 billion in fees on an aggregate $133 billion in deals.
  • JP Morgan most active underwriter on equity and bond offerings in the U.S. energy markets, with a market share of 14% on equity and 12% on bond deal amounts.
  • Credit Suisse lead underwriter on 3 out of the 6 energy IPOs in 2016.
  • The expectation of lower oil prices at the beginning of the year coupled with the increase in Permian Basin M&A and drilling activity, pushed companies in the Upstream sector to raise a significant amount of equity in 2016.
  • Capital markets activity is expected to pick up in 2017 in the energy industry, building on growth of Upstream M&A and private equity investments in the U.S.

In its tracking of the US oil and gas sector, Capitalize reported that the aggregate value of bond and equity issuances fell 5% in 2016 to $186 billion spanning 346 deals, compared with $196 billion from 322 deals in 2015 and $211 billion from 410 deals during the much higher-priced 2014 environment. Decreased liquidity in the bond markets was a result of investors becoming more risk-averse in a low commodity price environment. That affected profit margins and increased the credit risk of energy related companies, which had an impact on funds raised through bond offerings. This decrease was met with a healthy increase in equity issuances, a 36% surge in amount raised over that in 2015.

Oil price accounts for much of the deal market volatility as it began descending from July 2014 highs of $100-plus per barrel and accelerated in November 2014 when OPEC decided to open the taps to gain market share. This resulted in prices plummeting to a low of $27 per barrel in February 2016. Two years after OPEC's attack on oil prices began, both OPEC and non-OPEC countries agreed to cut production beginning January 1, 2017 -- a decision that is expected to further boost oil prices this year.

2016 in Review

Deal counts for equity and bond offerings increased by 7% in 2016 to 346 deals versus 322 in 2015 but also fell shy of 2014's 410 deals. Note, these deal counts do not include at-the-market equity offerings. On the other hand, total deal amount decreased by 5% in 2016 to $186 billion from $196 billion in 2015 and $25 billion lower than 2014's $211 billion of bond and equity deal amount issued.

2016 Energy Bond and Equity Issuances
Year  Deal Amount
($ billion)
 Deal Count
2011  $119  276
2012  $196  382
2013  $193  432
2014  $211  410
2015  $196  322
2016  $186  346
Source: PLS. Capitalize.

The 2016 capital markets landscape was characterized by some interesting phenomena, as well. Capitalize saw Upstream companies coming out with multiple offerings in 2016, fueled substantially by the need to raise money to act upon opportunities to grab inexpensive assets. Some companies go years without doing even one secondary offering. Callon Petroleum raised about $1.3 billion across four raises last year. Parsley Energy and Synergy Resources issued equity three times. Matador Resources, Rice Energy (plus one for its midstream subsidiary), Resolute Energy, Gulfport Energy, PDC Energy, SM Energy and Ring Energy all had two offerings.

Return of the SPAC -- after an absence from the US energy equity landscape, 2016 saw the IPOs of two blank-check companies willing to wait before pouncing on reasonably-priced oil assets. One of them, Silver Run Acquisition Corp., became Centennial Resource Development in September and the other, KLR Energy Acquisition Corp., combined with Tema Oil & Gas to form Rosehill Resources. This transaction is expected to close in the first half of 2017.

Good execution on Chapter 11 Restructuring Support Agreements -- Most of the companies that filed for bankruptcy last year came to court with at least a preliminary restructuring support agreement in hand, enabling them to get through the process faster. Those that hadn't garnered strong support from creditors and other stakeholders from the onset, like Energy XXI, waited over eight months to get through the process. Swift Energy, like its name suggests, got through in just three months.

Tender offers still hot -- Chesapeake Energy and Devon Energy undertook massive waterfall tender offers on several series of outstanding debt last year. Tender offer activity among overburdened oil companies was consistent throughout the year, continuing the momentum begun in 2015. Tendered debt was swapped for new debt, cash or a combination. Most everyone paid an early tender premium of $30 per each $1,000 of debt tendered. Many companies did equity or new debt raises for cash to pay for the tender offers.

"We're spending within our means" -- More and more CEOs and CFOs uttered these words or something similar in more press releases and on more conference calls this year, beating out "rightsizing" and "headwinds" for the most overused energy capital phrase of the year. Many companies used 2016 as an experiment to ratchet capex down below expected cash flow rather than borrow more to fund capex.

2016 equity offerings -- The increase in 2016 equity offerings was mainly the result of the large increase in deal amount raised by companies in the Upstream, Midstream, and Services sectors which helped keep 2016 equity deal amount raised close to the levels seen in 2015. Largest equity issuance increases over 2015 were in the Upstream and Services sectors at 69% and 342% respectively.

Top 10 Energy Upstream Equity Offerings in 2016
Company  Lead Bookrunner  Lead
Number of
 Deal Amount
($ Million)
Anadarko Petroleum  JP Morgan  100%  1  $1,876
Pioneer Natural Resources  BAML  32%  4  $1,404
Devon Energy  Goldman Sachs  70%  15  $1,294
Concho Resources  Credit Suisse  39%  24  $1,155
Marathon Oil  Morgan Stanley  78%  7  $1,109
Southwestern Energy  Credit Suisse  35%  24  $1,085
Diamondback Energy  Credit Suisse  53%  23  $1,000
Rice Energy  Barclays  60%  2  $1,020
Encana  Credit Suisse  N/A  4  $1,000
Hess  Goldman Sachs  35%  17  $975
Source: PLS Capitalize. Does not include overallotment shares.

Lead equity bookrunners -- JP Morgan was the most active bookrunner in the Upstream sector for equity offerings with deal amount share of $6.1 billion or 19% of total Upstream deals. Barclays took the lead in Midstream with a share of $3.2 billion (24% of Midstream). Wells Fargo was the most active in Downstream at a share of $0.4 billion (27% of Downstream). Morgan Stanley took the lead in the Services sector with $1.2 billion or 27%.

Top 10 US Banks for U.S. Energy Equity Deals in 2016
(Allocated Deal Amount $ Millions)
Bank  Upstream  Midstream  Downstream  Services  Integrated  Total
JP Morgan  $6,123  $211  $75  $747  $254  $7,411
Credit Suisse  5,558  263  0  408  0  $6,229
Barclays  1,662  3,191  228  644  0  $5,724
Goldman Sachs  3,318  436  15  293  0  $4,063
Morgan Stanley  1,720  282  87  1,163  68  $3,320
RBC  649  2,064  9  35  147  $2,903
BAML  1,878  77  107  127  147  $2,335
Citi  1,557  349  54  83  147  $2,190
Wells Fargo  1,380  167  352  229  0  $2,128
TD Securities  $387  $1,199  $9  $16  $372  $1,983
Source: PLS. Capitalize.

2016 bond issuances -- Low commodity prices at the start of 2016 tightened liquidity in the bond markets. As a result 2016 deal amount decreased by 15% to $133 billion in 2016 from $156 billion in 2015. Upstream bond issuances saw a minor uptick of 1% in deal amount raised over 2015 to $46 billion. Largest increase in bond issuances was seen in the Downstream sector, increasing over 2015 amount by 67% to $16 billion. Midstream, Integrated and Services sectors saw decreases ranging from 22% to 49% over levels in 2015.

Lead bond bookrunners -- JP Morgan took the lead allocation in the bond arena, capturing the largest market share in 3 out of the 5 energy sectors PLS covers; this was in Upstream, Midstream and the Integrated sectors. On average, the bank captured a 13% market share in each of those sectors. Bank of America Merrill Lynch captured the largest market share in Downstream at 8%. Morgan Stanley replicated its success in equity offerings in the Services sector by capturing the largest bond share in that sector at 12%.

Top 10 US Banks for U.S. Energy Bond Deals in 2016
(Allocated Deal Amount $ Millions)
Bank  Upstream  Midstream  Downstream  Services  Integrated  Total
JP Morgan  $6,543  $2,087  $1,260  $370  $5,259  $15,520
BAML  5,189  1,216  1,430  126  4,293  $12,253
Citi  2,317  976  661  576  4,447  $8,976
Barclays  1,719  1,056  231  308  2,933  $6,247
Morgan Stanley  982  307  598  1,293  2,933  $6,112
Wells Fargo  1,661  1,608  942  575  1,130  $5,916
Deutsche Bank  1,143  1,741  240  588  2,009  $5,721
Mizuho  1,793  1,328  728  66  226  $4,141
RBC  648  794  373  358  1,949  $4,121
Credit Suisse  $1,868  $615  $865  $411  $0  $3,760
Source: PLS. Capitalize.

Looking Forward

The oil and gas deal markets are well supplied with inventory, and capital is available for the right deal. At the beginning of 2016, over $100 billion of dry powder private equity capital was available. Much of this remains available a year later, supplemented by a receptive Wall Street quickly supporting overnight secondary equity raises to fund the largest deals. PLS anticipates additional capital to come to the forefront as the IPO markets open up.

As drilling and oil prices pick up in the US, PLS expects capital markets to pick up pace in 2017. Already we have seen 2 IPOs, 17 follow-on offerings and 13 bond offerings in the beginning of 2017. An expected rise in oil prices, increased U.S. M&A activity and private equity funds looking to monetize unrealized investments, the outlook for energy capital markets activity in 2017 looks promising.

About Capitalize

Capitalize is a comprehensive data platform of oil and gas debt and equity offerings. The database tracks bank leads, syndicates, client relationships and associated fees. The database is essential for both bankers and borrowers needing transparency on the capital-intensive oil and gas markets.

About PLS

PLS Inc. is a leading Houston-based oil and gas information and advisory firm that specializes in insightful real-time research for a global client base of both industry and investment professionals. Flagship products include the Global M&A Database, docFinder and Capitalize along with specialty industry reports. PLS Inc., through its PLS Energy Advisory Group, is also a leading transaction firm and in 2016 closed over 35 oil and gas deals across the globe.

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For more information, contact
Chris George