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Wall Street Funding Slowdown for Energy Continues with Q2 Capital Raised Via Public Equity & Debt Issues Off 36% YOY


Austin, TX (July 17, 2019) – Drillinginfo, the energy industry’s leading SaaS and data analytics company, released its Q2 2019 Capital Markets review revealing $16.9 billion in aggregate funds raised via energy industry public equity and debt offerings. The amount is down 36 percent from the same quarter a year ago, and down 23 percent from funds raised in Q1 2019.

“These numbers understate how weak capital markets were for parts of the industry,” said Drillinginfo analyst Andrew Dittmar. “In a particularly poor showing, the upstream and oilfield service sectors combined to raise only $300 million from fresh equity, and $2.5 billion from bond issuances,” said Dittmar.

On a bright note, the industry supported two initial public offerings that raised a combined $1.025 billion in Q2, almost double Q1’s $505 million. However, a once-probable IPO issue in midstream’s dynamic water management sub-sector was taken off the table when the Permian Basin-focused candidate withdrew its registration statement during the quarter, opting instead to fund privately with banks and an overseas sovereign fund.

The data was compiled by Drillinginfo’s Capitalize platform, which tracks securities and credit activity of energy companies that file with the U.S. Securities and Exchange Commission, as well as private investment activity.

Equity Markets Up Sequentially, Down YOY

↑ The industry raised $3.4 billion from public stock offerings during Q2, up 189% sequentially but off 19% YOY.

↓ Upstream sold $261 million in public equity in Q2 through a sole offering, the IPO of Brigham Minerals, and was down by half sequentially and 75% YOY. It was upstream’s second-worst equity raising quarter since 2010.

↑ The midstream sector issued $1.6 billion of equity, up 400% from Q1 and 17% YOY. IPO Rattler Midstream Partners’ $765 million raise accounted for almost half the total.

↓ There were no public equity offerings in the oilfield services sector in Q2, a first since 4Q15. The sector had raised $312 million in Q1 and $1.7 billion in 2Q18. Additionally, downstream had no fresh public equity offerings.

“Wall Street emphatically closed the door on fresh external capital for upstream companies, especially from equity raises. That is consistent with calls for E&Ps to live within cash flow,” added Dittmar. “The sole equity success story was Brigham’s IPO and its business of owning minerals and collecting royalties isn’t exactly representative of the broader industry. Similarly, it was tough sledding for oilfield service companies, which are being crimped by cutbacks in upstream spending,” he said.

“The only continued momentum for capital raises came from midstream companies and integrated utilities, which combined to account for 95 percent of energy sector stock issuances and 85 percent of bond sales, including the spinout of Rattler by Diamondback. Unsurprisingly, midstream asset sales are also where E&P companies are looking to raise capital,” added Dittmar.

Capitalize tracked a total $3.4 billion in industry-wide equity issuances through six offerings in Q2. This compares with $4.2 billion in 18 equity offerings in 2Q18 and $1.16 billion across five offerings in Q1, which marked the industry’s lowest output of total equity deals this decade.

Private equity groups also continued their affinity for midstream deals in Q2, making nine new commitments with a disclosed total of $6 billion. Upstream came in second on commitment count with six during the quarter, Capitalize reported. The Permian is unsurprisingly the main target for upstream private capital while midstream investments are geographically diverse.

Bond Issues Fell 39 Percent YOY and 36 Percent from Q1

Capitalize tracked the issuance of $13.5 billion principal amount across 24 bond floats industry wide in Q2, compared with $21 billion through 30 deals in Q1 and $22 billion through 34 deals YOY. Average principal amount in Q2 of $561 million was off 19 percent sequentially and 13 percent YOY. Investment-grade issuers accounted for two-thirds of the debt floated during Q2, down from 75 percent in the previous quarter. Generally, the trend over the last year has been a focus on a better credit quality of issuer for underwritten bond offers. Midstream represented 57 percent of debt raised and 50 percent of activity.

Bond Floats by Sector

↓ Upstream issuers sold $1.96 billion in notes through five floats, off 57 percent from the $4.58 billion raised via six deals in the previous quarter and 66 percent down from the $5.71 billion in debt raised across 12 issuances YOY.

↓ Midstream raised $7.7 billion in debt across 12 deals, 22 percent below Q1’s $9.9 billion through 13 issuance and 38 percent lower than $12.48 billion in debt raised via 17 deals in 2Q18.

↓ Oilfield services raised $0.53 billion in debt through one offering in Q2 compared with $0.61 billion from five bonds in Q1 and $1.6 billion sold via two offerings in 2Q18.

↑ Integrated companies (in this case integrated utilities) issued $3.8 billion in bonds during Q2 compared with $4.0 billion in Q1 and $3.0 billion in 2Q18.

Full copies of the report are available upon request.