With Oil Prices Expected to Reach $100... Energy Companies Increase IPOs and Corporate Bond Issuances

Two US IPOs This Year... Additional Listings Expected
High-Interest Corporate Bond Issuance Also Continues

This year, initial public offerings (IPOs) and corporate bond issuances by oil and gas companies have been occurring one after another. As international oil prices rise, boosting the profitability of energy companies, these firms are actively moving to raise capital.

According to financial information provider Dealogic on the 16th (local time), two oil and gas companies, Kodiak Gas Services and Atlas Energy Solutions, conducted IPOs in the U.S. stock market this year. Considering that there was only one IPO in the U.S. stock market over the past four years (2019?2022), this year can be seen as a relatively prosperous period for energy company IPOs. The stock prices of these companies rose by 11% and 20%, respectively, after listing.

[Image source=Reuters Yonhap News]

Maha Natural Resources, based in Oklahoma, also announced IPO plans last month, indicating that additional energy company listings in the U.S. stock market are expected to continue. Pete Boden, Global Head of Industrials and Energy Infrastructure at investment bank Jefferies, predicted, "Many more IPOs will take place going forward."

Besides IPOs, energy companies are also raising funds through stock sales and high-interest corporate bond issuances. Already listed oil and gas companies raised $1.5 billion through six stock sales in September alone. The number of stock sales was the highest since 2016, and the proceeds were the largest since 2018.

Corporate bond issuances by energy companies also increased significantly to 11 cases from January to September this year, compared to just one during the same period last year. This is the highest level in five years since 2018.

The background for the surge in capital raising by energy companies this year includes strengthened internal capital regulations and the sharp rise in international oil prices. In the 2010s, energy companies took on massive debt and expanded their businesses excessively, causing significant losses to investors. Subsequently, as investment avoidance toward energy companies intensified, their capital raising also faced difficulties. Since then, oil and gas companies have improved the investment environment by focusing on shareholder returns and expanding internal capital regulations.

Moreover, the recent sharp rise in international oil prices has raised expectations for increased profitability of energy companies, leading to active capital raising. In particular, due to the recent armed conflict between Israel and the Palestinian militant group Hamas, there are concerns that international oil prices, currently in the high $80s per barrel, could surge again. Bloomberg reported that if Iran, an oil-producing country rumored to be behind Hamas, joins the conflict, international oil prices could soar to $150 per barrel.

Hilary Holmes, co-chair of the capital markets practice at Houston-based law firm Gibson Dunn, stated, "Many expect oil prices to surpass $100." She added, "Oilfield service companies have long struggled with capital raising, but now they can engage in more fundraising activities and secure steady cash flow," and evaluated that "stock prices are trading at good profitability levels."

An oil expert said, "U.S. oil and gas companies are securing investors and raising external funds thanks to rising energy prices and strengthened balance sheets," adding, "As high oil prices continue, this trend is expected to accelerate further."