U.S. OIL & GAS M&A
Despite a 50 percent slide in crude prices since last summer, U.S. shale oil producers are enjoying remarkably easy access to capital markets and this will allow them to avoid getting squeezed when banks reset their loans in April.
A surge in equity issuance so far this year by oil and gas companies has surprised many who in December thought the price drop would hurt the ability of producers to tap capital markets.
But investor appetite has held up in the first quarter, amounting to a vote of confidence in the ability of shale oil companies to weather the storm by relying on hedges and slashing spending to show a commitment to capital discipline.
"Because the capital markets are so good companies that are more worried about their borrowing base are able to ... raise either debt or equity, take those proceeds, and reduce their borrowing base," said Timothy Perry, a managing director for energy investment banking at Credit Suisse in Houston.
He said one client had reduced its borrowing base by two-thirds after doing a capital market deal.
According to Thomson Reuters Deals Intelligence, there have been 29 U.S. oil and gas equity deals so far this year that raised $13.9 billion, the highest volumes for that period in 15 years.
Banks typically reassess loans in October and April, and some have started to trim the value of reserves tied to credit lines by $10 to $20 a barrel from the mid-$70s.
That is expected to marginally reduce loans a bit in the sector, but not as much as initially feared.
Some of the demand for new issues stems from the notion among investors that companies can survive with oil around where it is now, in the mid-$40s, and do better if prices recover.
"People view these companies as important. They are needed for the oil and gas supply situation, they are competitive assets and they are going to produce and earn a margin at mid-cycle," said Robert Santangelo, co-head of equity capital markets origination in the Americas at Credit Suisse.
A slew of takeovers are expected in the U.S. oil industry, though so far there have not been many deals as buyers and sellers cannot agree on valuations because of volatile oil prices.
"M&A will follow, M&A tends to take a little bit longer," said Osmar Abib, global head of oil and gas investment banking at Credit Suisse.
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REUTERS - Brent crude futures LCOc1 were down 72 cents at $61.49 per barrel at 1020 GMT, having fallen by 1.5 percent on Tuesday, its largest one-day drop in a month. U.S. West Texas Intermediate (WTI) crude CLc1 was at $55.12 per barrel, down 58 cents.
BLOOMBERG - Prices dropped during the session as the International Energy Agency said the recent recovery in oil prices, coupled with milder-than-normal winter weather, is slowing demand growth. The worsening outlook for consumption dampened some of the enthusiasm that OPEC and its allies will extend supply curbs.
Global energy needs rise more slowly than in the past but still expand by 30% between today and 2040. This is the equivalent of adding another China and India to today’s global demand.
Product exports have grown significantly over the past several years and are expected to continue to grow as Russian refineries add capacity to produce more high-quality products.