HOUSTON (Dow Jones Newswires), May 13, 2009
Independent crude oil and natural gas producers are taking advantage of the commodity price and broader stock market rally by raising capital.
The flurry of deals, however, masks the varying degrees of financial health among companies in the sector. Better-capitalized companies, which tend to be larger, are using the opportunity to build up cash reserves to invest in growth. Many smaller firms, meanwhile, had overextended themselves when oil and gas prices were at all-time record highs and are issuing shares to pay down debt and appease creditors.
Five companies that specialize in the exploration and production parts of the energy supply chain have jumped on the capital-raising bandwagon, just as oil futures prices hit fresh six-month highs. They're not the only ones. Several banks, prodded by the results of the U.S. Treasury's stress tests, have announced plans to raise money through the issue of common stock. Ever since the broader markets began to show improvement in March, public companies have been increasing the pace at which they raise money in the U.S. through common stock sales. Last week, the number of such follow-on deals hit its highest point in two years, with 20 completed, according to data from Dealogic.
The influx of supply has hit share prices, and some say companies' eagerness to come to market is a sign that energy prices' recent bounce may be short-lived.
Anadarko Petroleum Corp. (APC), the second-largest U.S. oil and gas producer among companies that don't have refining or chemical operations, said Monday that the approximately $1.5 billion in proceeds it expects to receive from the 30 million shares common stock it's offering will be used mainly for future capital expenditures. Last week, Delta Petroleum Corp. (DPTR), a Denver-based independent oil and gas producer focused on the Rockies and east Texas, sold 150 million shares in order to increase liquidity and pay debt after its lenders cut back on credit lines, said David Tameron, an analyst at Wachovia Capital Markets. Independent producers Kodiak Oil & Gas Corp. (KOG), SandRidge Energy Inc. (SD) and GMX Resources Inc. (GMXR) have also come to market.
"There are two kinds of exploration-and-production companies issuing stock right now," Tameron said. "The companies that have to do it because they are on the clock, and the other more opportunist issuers that are doing it to shore up the balance sheet and to give themselves more flexibility."
Oil, Gas Price Roller Coaster
Oil prices fell from nearly $150 a barrel hit last summer to the low-$30s in February and temporarily topped $60 a barrel on Tuesday. Natural gas prices, which traded above $13 a million British thermal units last year, sank to nearly $3 in late April and have since rebounded above $4.40. For some companies with high debt loads, free cash flow evaporated when prices and demand dropped amid the global economic downturn. Selling assets at a desirable price became difficult because of the disparity between asset price expectations between sellers and buyers, analysts said.
SandRidge has succeeded in reaching agreements to selling some assets, although some remain on the block, which it says will help it strengthen its balance sheet and meet its long-term production goals.
Analysts say Anandarko, which has a strong balance sheet with about $2 billion in available cash, is building up that cash cushion so it can continue its ambitious growth plans and take advantage of acquisition opportunities. The company is targeting long-term hydrocarbon production growth of 5% to 9% annually.
Anadarko is one of several independent oil producers that have taken on large exploration projects far offshore and overseas -- traditionally the province of much larger companies such as Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX). Despite its small size relative to the major integrated energy companies, Anadarko has announced major discoveries in Ghana, Brazil and the Gulf of Mexico.
Turning those discoveries into producing assets, however, will require companies to spend billions of dollars to drill wells and build infrastructure at a time when lower oil prices have cut into revenues. Anadarko expects to spend between $3.9 billion and $4.4 billion on capital projects this year. Shares closed 6% lower at $45.91 Tuesday.
"Anadarko wanted to get the money while they could," said Phil Weiss, an analyst at Argus Research in New York.
Analysts say that there is still uncertainty surrounding the recent spike in crude oil and natural gas prices because both markets are contending with large stockpiles and continued weak demand.
Copyright (c) 2009 Dow Jones & Company, Inc.
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