Even though the oil prices more than halved in the last 2 years, the first IPO in the U.S. Oil & Gas sector in a long time seems to pay off. Extraction Oil & Gas Inc. is the first company brave enough to go public with the oil prices of $50 per barrel.
Yesterday, a Denver-based Extraction Oil & Gas Inc. went public on Nasdaq and managed to sell as many as 33.33 million shares priced at $19 each. This stock price was considerably higher than the expected range of $15-$18 per share, what allowed the company to raise over $630 million at the opening, reports Reuters. Yet, the company didn't stop there. Shares jumped to $22.75 in the early trading session yesterday morning, pushing the firm's valuation to $3.23 billion.
The company operates around 224,000 acres in the Wattenberg Field in Colorado that is part of the bigger Denver-Julesburg Basin. Prior to its IPO, Extraction Oil & Gas Inc. grew its revenue by 19% to $110.5 million in the first six months of this year and pumped oil at the rate of about 37,328 barrels per day, according to the company's July performance. The oil company filed for an IPO last month and had such big names as Barclays (LSE: Barclays [BARC]), Goldman Sachs (TOCOM: Futures On Gasoline Feb 2017 [GS]), Credit Suisse (SIX Swiss exchange: Credit Suisse Group [CSGN]) and RBC Capital Markets underwrite its public offering. Back in September, Renaissance experts predicted the company's IPO gains to be around $400 million while yesterday's trading day has demonstrated that Extraction Oil & Gas Inc. significantly outperformed the experts' prediction.
The success of the firm's IPO is also a very good sign for the entire industry as Extraction Oil & Gas Inc. was the first energy company to go public with the oil prices at $50 per barrel. The last time an American energy company launched an IPO was in 2014 when oil was trading at $106 per barrel, creating a completely different market conditions for the companies to go public.
"The recent uptick in energy IPO-related activity may be an indication that market is recognizing that crude prices have stabilized and a new normal is being established in a range around $50 a barrel," an energy analyst Joe Dunleavy told Reuters.
The experts believe that the success of Extraction Oil & Gas' IPO could be an encouraging example for other companies in the sector that have been postponing their IPOs due to the uncertainty in the oil market. This year's January was arguably the worst month for the oil industry when the oil prices hit the lowest level in the past 12 years at about $30 per barrel.
Therefore, the fact that the oil prices sticked to about $50 per barrel, could be an indication of a stabilization in the market, yet at quite a lower level compared to that of 2014. However, the talks around the oil production freeze among the OPEC countries and Russia have added some positive outlook to the gloomy future of the sector.
According to Reuters and the Wall Street Journal, several other energy companies are preparing their IPOs starting already this week including Mammoth Energy Services and Jagged Peak Energy among others. But it is still too early to give a definite answer whether Extraction Oil & Gas Inc.' IPO success could be a benchmark for other energy companies to predict their possible IPO performance and whether the company itself will be able to sustain the impressive results of the last 2 days.
The WSJ cites an example of Eclipse Resources (NYSE: ECR), the last company going public in the Oil & Gas sector back in 2014. Eclipse Resources similarly opened its IPO with a very impressive result, yet it watched its stock fall almost 90% over the last 2 years. That is why, considering the overwhelming volatility of the oil prices and the changing behaviour of the biggest oil producers, investors should be careful with making any long-term bets.
Yet, the analysts say that this IPO is a good test for investors' "appetite" for the Oil & Gas shares at the moment and it seems like Extraction Oil & Gas Inc. has demonstrated that there is still hope for the sector in its gloomy days.