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 Although it might seem that companies would upset their investor
base by diluting earnings per share when they added more stock, most
of the 15 companies that have done so have actually outperformed
their peers.
Their share prices have beaten an oil and gas producers index, on
average, by about 3 percentage points since their respective
offerings, and the outperformance is even stronger when compared
with that of the broader S&P energy sector.
With widespread worries about energy companies collapsing under debt
loads, analysts and investors said that shareholders could more
easily stomach the dilution of their holdings if it means adding
cash to strengthen balance sheets.
The stronger companies in the industry were generally those able to
raise capital through share sales, analysts said, and the recent
successes did not necessarily mean a flood of further offerings
would follow.
“The companies that are doing it are good solid companies,” said
Mike Breard, an energy stock analyst at Hodges Capital Management in
Dallas. "If your fund has been out of energy for two years, these
are the stocks you look at first."
Hodges Capital owns shares of Diamondback Energy Inc, which said on
Jan. 13 it was raising $226 million through a stock offering to
repay the debt under a revolving credit facility, with the rest for
exploration, development activities and other purposes.
Since then, Diamondback’s shares have climbed 31 percent against a
19 percent rise for the SIG Oil Exploration & Production index.
Despite "mixed emotion" about the offering because it did dilute the
stock, Breard pointed to the "safety" provided by the funding given
that oil was only about $30 a barrel at the time, about $10 cheaper
than it is now, making the climate more uncertain.
"Under the conditions that existed then, you’d rather own 90 percent
of a company with a stronger balance sheet than 100 percent of one
with a slightly worse balance sheet," Breard said.
Oasis Petroleum Inc, Callon Petroleum Co and PDC Energy Inc have
also outperformed the oil producers index by more than 10 percentage
points since their respective offerings. Cabot Oil & Gas has lagged
the most, underperforming by more than 30 percentage points.
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All told, U.S. exploration and production companies have raised more
than $10 billion through equity offerings this year, analysts at
Capital One Securities estimate.
Companies including Pioneer Natural Resources Co, Synergy Resources
Corp, PDC Energy and Callon did not urgently need cash but stood to
“immunize” their balance sheets in case the oil markets are ugly
into 2017, said Irene Haas, exploration and production analyst at
Wunderlich Securities in Houston.
Matador Resources and Energen have asset sales pending, but the
newly raised money means they do not have to worry about timing of
proceeds, Haas said.
“People would rather they have money in their pocket and survive,”
Haas said. “They’ll worry about dilution later.”
Investors who gobbled up shares during offerings in January and
February may have called a bottom in oil prices, which have
rebounded 50 percent since mid-February.
While plenty of oil companies want to offer shares, "I would guess
we’ve seen most of the low-hanging fruit that’s been picked," said
Christian Ledoux, senior portfolio manager at South Texas Money
Management in San Antonio.
Ledoux said he doubts many more will follow, "not because (the
companies) don’t want to, but because they won’t be able to attract
investors" until oil prices are much higher.
(Reporting by Lewis Krauskopf; Editing by Linda Stern and Steve
Orlofsky)
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