Texas Shale Drillers Lure $2 Billion in New Equity to Permian

(Bloomberg) -- Oil producers in West Texas, defying expectations they would fall victim to OPEC’s price war, are instead selling investors on the idea that they can still profit with prices below $35 a barrel.

Drillers in the Permian Basin, the biggest U.S. shale field, have raised at least $2 billion from share sales over the past eight weeks. And more issuances are on the way as producers try to avoid piling on additional debt.

Pioneer Natural Resources Co.’s 12 million-share issuance on Jan. 5 was followed a week later by Diamondback Energy Inc.’s announcement of a 4 million-share sale. Private equity is getting in on the act, too -- Kayne Anderson Capital Advisors LP is bankrolling a startup called Invictus Energy LLC with $150 million to drill the Permian and another Texas field known as the Eagle Ford Shale.

Crude’s crash below $30 a barrel for the first time in 12 years means explorers are facing cash shortfalls, and selling shares is less painful than adding debt or auctioning off assets that would attract weak prices in the current environment, said David Deckelbaum, an analyst at KeyBanc Capital Markets Inc.

“In a world where the oil price can break you, taking on debt is an absolute no-no,” said Deckelbaum, who pegged Diamondback as a likely stock seller six days before the company’s announcement. He foresees a “heavy wave” of new share sales.

Shares Outperforming

Since its Jan. 5 sale, Pioneer has outperformed the crude market, falling 2.3 percent as oil dropped 13 percent. Diamondback has surged 22 percent since its Jan. 13 issuance.

Oil prices have tumbled by about 60 percent since the Organization of Petroleum Exporting Countries nixed any production cuts in November 2014 to shore up crude markets that at that point had been falling for five months. Saudi Arabia, the group’s leader and the world’s largest single source of oil, has sought to defend its market share by letting prices slide to the detriment of the U.S. shale industry. West Texas Intermediate crude fell 4.4 percent to $30.23 at 12:20 p.m. Tuesday on the New York Mercantile Exchange.


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