Wall Street Pouring Money Back Into Oil And Gas

“The mood is absolutely different,” even as oil prices have faltered

By Nick Cunningham, Oilprice.com:

Despite the near record increase in U.S. oil inventories last week – an increase of 13.8 million barrels – oil prices traded up on February 8 and 9 as traders pinned their hopes on a surprise drawdown in gasoline stocks, which provided some evidence of stronger-than-expected demand.

The abnormal crude stock increase took inventories close to 80-year record levels at 508 million barrels, and is another bit of damming evidence that should worry oil bulls. But the oil markets were not deterred. In fact, that has been a defining characteristic of the market in recent weeks – optimism even in the face of some pretty worrying signals about the trajectory of the market “adjustment” process.

More signs of optimism abound. Wall Street is pouring the most money into oil and gas companies in the U.S. since at least 2000, according to Bloomberg. In January alone, drillers and oilfield service companies raised $6.64 billion in 13 different equity offerings.

“The mood is absolutely different,” Trey Stolz, an analyst at the investment banking firm Coker & Palmer Inc., told Bloomberg. “Go back to a year ago and the knife was still falling. But today, it feels much, much better.”

Moreover, the money raised for these U.S. companies represented more than two-thirds of the total $9.41 billion in new energy equity issued across the globe in January. Big Finance is ready to pour money back into the oil and gas sector and they are doing it mostly in the U.S.

The industry should see more activity this year as companies rush to conclude deals ahead of the rebound. A new report from Moody’s Investors Service predicts that M&A activity will rise substantially in 2017. “E&P acquisitions and divestitures dropped off when commodity prices collapsed in late 2014, but have significantly ticked up since mid-2016,” the Moody’s report says.

A lot of the action, unsurprisingly, is occurring in the Permian Basin. Austin-based Parsley Energy just announced its decision to spend another $2.8 billion on Permian acquisitions. The additional 71,000 net acres will give it one of the largest holdings in the Permian for an independent company.

“It’s really been remarkable what Parsley’s been able to do,” Jackson Sandeen, Wood Mackenzie’s chief Permian Basin analyst, told the Houston Chronicle. “The company’s been on a tear.” Parsley has spent more money in the Permian this year than any other company besides ExxonMobil, which spent more than $6 billion in January to double its holdings in the Permian.

Wood Mackenzie says that 2017 will be even larger than 2016 in terms of the value of deals in the Permian. Last year, the industry spent $24 billion in mergers and acquisitions, a colossal sum that turned the basin into the hottest play in the country. Land prices skyrocketed as capital flowed into West Texas. But Wood Mackenzie says that less than two months into the New Year, the industry has already spent half of that amount in the Permian.

Moody’s cautioned that the valuations of some of the deals in the Permian might have become too large. The high prices might fall back a bit as the bubble deflates. Nevertheless, the ratings agency sees more money pouring into E&Ps, pipeline companies, oilfield service companies and refining. “As oil and natural gas prices stabilize at higher levels, increasing confidence in industry prospects will spur further acquisition activity in 2017,” Moody’s wrote.

The boom in the Permian will now lead to a rash of deals in the midstream sector, as more pipelines are needed to carry the larger flows of oil. FuelFix reports that companies like Magellan Midstream Partners and Enterprise Products Partners are rushing to build new pipelines from West Texas to Houston and the Gulf Coast, allowing more Permian oil to be processed and refined or exported abroad.

In short, the sentiment in the oil patch continues to improve even as oil prices have faltered in the low-to mid-$50s per barrel. That has translated into a record net-long position from hedge funds and other money managers, an incredible build-up in bullish bets on oil.

The flood of money back into the industry portends a strong rebound in 2017. It could also leave a lot of people and companies on the hook if oil prices fall back again. By Nick Cunningham, Oilprice.com

The oil sector might not be totally out of the woods just yet. But there’s now a new sector on top of the worry list. Here’s what the experts of the “restructuring industry” see. Read…The Growth Industry in 2017? Debt Restructuring & Bankruptcy!

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  12 comments for “Wall Street Pouring Money Back Into Oil And Gas

  1. Thor's Hammer says:

    Now if the pace of climate change in the high Arctic caused by burning the earth’s million years of accumulated carbon in an eyeblink can just continue it’s exponential growth for a few more years until we have an ice-free North Pole, think of the brilliant future ahead for the oil industry. Perfect timing for our new Secretary of State to consummate the merger between Exon and the Russian oil giant Rosneft that Tillerson has long sought.

    Are humans smarter than yeast?

    • Timthetiny says:

      So a few of my geologist buddies and I were discussing this.

      The big target would be Antarctica. It could be some prime, onshore (or shallow offshore!) real estate. Probably some huge fields to be discovered there.

      Nevermind that our roads will be under water!

      • Intosh says:

        A near-perfect coincidence because millions will need to relocate due rising sea level AND fewer drinkable water sources AND an increasingly likely nuclear war (India and Pakistan come to mind) due to land and water shortage. As we can see, things can escalate very very rapidly.

  2. AlbieOK says:

    Move along. Nothing to see here.

  3. rich says:

    “Exxon Mobil supports a carbon tax as the best approach for policy makers”

    The group that calls itself the “Climate Leadership Council” (CLC), led by former Secretary of State James Baker, former Treasury Secretary and Goldman Sachs CEO Hank Paulson, some other prominent Republicans, and some big business types like former Walmart Chairman Rob Walton, are all for a carbon tax. “They were out there hawking their plan on Wednesday to Vice President Pence, Counselor to the President Kellyanne Conway, top economic advisor Gary Cohn, and Chief of Staff Reince Preibus and came out saying they were optimistic about their chances to win over the administration.”

    Goldman Sachs was, historically, Obama’s largest campaign donor. The Goldmanites supported Obama, and in return Obama was supposed to keep the Goldmanites away from prosecution and he was supposed to get a carbon tax passed so that the TBTF banks could engage in carbon credit derivatives trading. These banks could have made billions of dollars trading carbon credits, but Obama couldn’t pull of the deal.

    However, Trump’s Administration has got five Goldmanites, EXXON’s former CEO, and billionaire Rothschild alum to boot. In a dying Main Street economy, where most U.S citizens are taxed out, a carbon tax would yield billions from new taxes on those who can least afford to pay them. Meanwhile, the fat cats and corporations will pay even less. Perhaps Wall Streeters are investing in oil again, because they know a carbon tax, that means more wealth extraction from the middle class, is on its way.

    • Petunia says:

      Carbon credits indeed! That ship has sailed right off the edge of the planet, ops, I meant horizon.

      There is no middle class anymore, there is no more wealth to extract. The liberals are yelling that it’s 1932, but it is really 1850. The country is splitting apart and everybody is comfortable with the side their on. Sometime in the near future there will be one protest too many.

      • night-train says:

        “The country is splitting apart and everybody is comfortable with the side their on. Sometime in the near future there will be one protest too many.”

        That is something we agree on. I believe that the divide is too great to bridge. We either find a way to work together, or come to an end as a nation. More likely the latter. We were born from blood and fire, reaffirmed with blood and fire, and will possibly end the same way.

  4. robert sinclair says:

    bill shit baffles brains

  5. Paulo says:

    This article puts a bullet in it.


  6. John k says:

    Peak oilers have been saying right now is the peak every year this century. Us and eu consumption has been declining, market buoyed by china taking up the slack. But china might be moving into recession… in which case production will decline on account of falling demand, not supply.

  7. Neighbor says:

    The “elite” financiers are stoned on power. Iran just discovered vast, easy fields and will pump even more. The US is going to going unbelievably Third World as the rest of the countries move out of the dollar, the metro dollar and our devastating policies. We won’t even know what hit us. The politicians won’t get their entitlements. There just won’t be an economy.

Comments are closed.