US shale equity sales slow as oil retreats

Share sales by US oil and gas companies have slowed sharply in recent months, in a sign of the tightening financial pressures on the industry following the fall in crude prices.

US exploration and production companies raised a record total of $10.8bn from issuing new equity in the first quarter of 2015, according to Dealogic, but that has fallen to $3.7bn in the second quarter, which ended on Tuesday.

The reduced availability of equity finance for the small and midsized companies that led the US shale revolution is forcing more of them to look at selling assets to remain solvent.

Corporate bankruptcies and takeovers in the industry are also expected to increase.

In the first few months of 2015 there was a rush by US oil and gas companies to sell shares to strengthen their balance sheets, with the proceeds used to pay down debt and help finance their drilling programmes.

Whiting Petroleum and Noble Energy each raised about $1bn, with Newfield Exploration and Laredo Petroleum, raising about $815m and $760m respectively, among the 38 companies in the industry that have sold shares this year.

However, Deborah Byers, a partner at Ernst & Young, the accounting and consulting group, suggested companies that had already issued equity were unlikely to be able to do so again, because of concerns from existing investors about dilution.

“It may be a one-shot deal,” she said.

Diminished capacity to sell more shares is one of several mounting financial pressures on the industry, including the exhaustion of hedging programmes that companies have used to protect themselves from the collapse in oil and gas prices.

The less financially secure high-yield borrowers in the US industry have hedged just 24 per cent of their expected oil production for next year, according to analysts at Bank of America Merrill Lynch, compared with about 60 per cent last year.

Credit markets have remained open to exploration and production companies, with borrowing through loans and bonds hitting $31.4bn in the second quarter, up from $28.4bn in the first quarter, according to Dealogic.