A recent flurry of initial public offering (IPO) announcements by US oil and natural gas firms, driven by lower borrowing costs and higher commodity prices, signals a modest revival of investor appetite for a sector that has long been out of favour.
Denver-based natural gas producer BKV made its trading debut on the New York Stock Exchange last month after raising $270mn, while Appalachian-focused Infinity Natural Resources has also filed to go public. Oil field services firms are also getting on in the act with HMH, backed by Baker Hughes and Norway's Akastor ASA, filing to sell shares.
Energy companies are looking to take advantage of cheaper capital after the US Federal Reserve embarked upon its long-awaited cycle of interest rate cuts, with some possibly hoping to squeeze in share sales ahead of November's presidential election. Record highs for US benchmark indexes have also fuelled positive momentum, as well as an oil market that has been lifted by the escalating tensions in the Middle East, and US natural gas prices that have bounced off their recent lows.
While price volatility has acted as a brake on the IPO market for oil and gas in the past, the hope is that pent-up demand is ready to be tapped as Wall Street slowly comes around to a sector that has spent the years since the pandemic repairing balance sheets after past excesses. An industry previously shunned by environmentally focused investors is now seeing signs of renewed engagement. And as the IPO climate improves, firms that show solid growth prospects and the ability to turn a profit will be among those that are most attractive.
"We're going to see more people hitting the markets, whether it is traditional capital markets activity, but also more IPOs," law firm Baker Botts' corporate department chair, Samantha Hale Crispin, predicts. "Being able to access the capital markets provides name recognition, access to a broader type of capital, and flexibility."
BKV listed its shares almost two years after first unveiling plans to go public. The largest gas producer in Texas' Barnett Shale basin, with operations also in the Marcellus shale in Pennsylvania, BKV sold 15mn shares at $18 apiece. That was slightly lower than the proposed price of $19-21. Infinity, which is backed by Pearl Energy Investments and Natural Gas Partners and operates more than 120 wells across 90,000 acres in the Utica and Marcellus shale basins, has also filed. And Peak Resources, an oil and gas producer active in the Powder River basin of Wyoming, is also gearing up for an IPO, according to a recent filing with the Securities and Exchange Commission.
Private exit
Despite the uptick in energy IPO announcements, there is some scepticism that the market is finally about to turn a corner, given speculation that some companies with robust cash flows are merely exiting for their private owners, with the run-up in oil prices providing the window needed. And given a pick-up in the wider IPO market, it is only natural to see oil and gas receive a boost as well.
"For private equity to exit is probably driven as much by the current status of the market, which is up a bit because of the rate cuts, and the fact that these companies are ageing in their portfolios," University of Houston energy economist Ed Hirs says. However, others see momentum behind the recent IPO announcements that is likely to gain traction once the US election is out of the way, and scope for more deals in 2025. "Sitting on capital for too long is never a good thing, regardless of which type of industry player you are," Crispin says. "There's a real desire to put that to work."
