Equity markets reopening to oil, experts say
May 5, 1999
By MICHAEL DAVIS
Copyright 1999 Houston Chronicle
Small oil companies struggling with high debt can likely avoid a trip to bankruptcy court now that equity markets are reopening to energy companies in the wake of higher oil prices, energy industry officials said Wednesday.
A variety of debt and equity offerings recently announced have given many companies hope for renewed access to badly needed capital. Just weeks ago, speculation was rampant that a number of small independents would not last through the second quarter without Chapter 11 protection.
Anadarko Petroleum on Wednesday closed a 6.25 million-share offering, raising $240 million. Also on Monday, driller Pride International said it will sell $75 million of new shares to investment firm First Reserve Corp.
Earlier this week, Key Energy Services said it will sell 55 million shares to raise $165 million. East Brunswick, N.J.-based Key Energy Services is a land-based well servicing company, one of the hardest hit segments of the industry.
When oil was languishing at $10 to $12 a barrel, the industry was becoming insolvent and small independents were having their balance sheets destroyed, Matt Simmons, president of Simmons & Company International, said Wednesday at the Offshore Technology Conference.
"Most companies need about $16 a barrel just to keep production flat," he said.
As a result of pinched cash flows due to low prices, service companies are having trouble getting some customers to pay their bills. Dave Robson, chief executive of Houston seismic company Vertias DGC, said collection problems have been the worst ever in 1999.
"Prices are up, but cash flow is not enough," he said. "The equity markets need to step up and provide capital."
As prices have moved up -- the June oil contract closed Wednesday at $18.98 per barrel, up 6 cents -- capital markets have opened back up to small independents, said Bobby Tudor with Goldman Sachs & Co.
"A window has opened and companies are going to rush into it," Tudor said.
But any recovery will be slow. Even though prices have moved back up, companies are still budgeting based on low oil prices, said Don Vaughn, vice chairman of Halliburton.
"If prices stay up, we would expect to see some improvement next year, but our clients are currently judging the viability of projects based on $12 oil," Vaughn said.
Simmons and Jim Day, chief executive of Noble Drilling Corp., both said there are too many offshore contract drillers and that further consolidation is needed in that part of the industry.
"Of the top 10 offshore drillers, there needs to be about half of that," Day said.
A hypothetical situation that was raised in another session on Tuesday also arose Wednesday: the merger of an energy company with a large financial services company. The example being bandied about was a merger of Goldman Sachs with Baker Hughes.
"I think we could see a surprise player emerge that would be like a combination of Bechtel, GE Capital and Baker Hughes," Simmons said.
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How about taking ROCO Petroleum public? The iron is starting to get hot.
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