Investors Unimpressed By String Of Oilfield Services IPO’s

The number of initial public offerings in the oilfield service sector has so far this year overtaken exploration and production listings by a wide margin, signaling returning optimism in the sector thanks to improved oil prices. Still, investor appetite has been relatively lukewarm with some of the five companies that have listed since January trading below their listing prices, while others trade above it.

Bloomberg data tells us that the combined amount of money the five oilfield service providers raised in their IPOs since January 2017 was US$1.36 billion – surpassing the total raised through listings in 2013, when oil was trading at almost US$100 a barrel. Now two more companies in the services sector are preparing to list: BJ Services Co. and Nine Energy Service Inc. The former eyes proceeds of US$300 million and the latter expects to pocket US$100 million from its IPO.

This certainly suggests that oilfield service providers are back on the growth path. They did not really have a choice, and went straight from basic survival into expansion, as demand for their services skyrocketed over the last few months. Many are charging up to 70 percent more for their various services than just a year ago, and some are pulling out of contracts and paying penalties so they can use their fracking crews on more lucrative projects. In short, it’s service providers’ market.

The last two years of layoffs created a shortage in the industry that needs urgent addressing. After all, the oilfield services industry accounted for more layoffs than the E&P sector. But besides a fresh workforce, oilfield services need to better position themselves against competitors – the oil price improvement intensified competition and particularly smaller players need the money to gain an edge in an industry dominated by a handful of giants.

The problem is that investors are uncertain about returns. As one oil analyst told Bloomberg’s Alex Barinka, oilfield services is a very general term that includes a wide variety of different things, from fracking to sand and water supply. It’s difficult to navigate the complex landscape, so investors are staying with the big names. According to Rob Thummel, the newcomers on the capital market will need to convince potential investors that there is something that distinguishes them from the herd.

Right now, it’s safe to say that “Permian” is the magic word for energy investors. Everybody is flocking to the Permian, and oilfield service providers working in the region must be the ones with the worst workforce shortages. Already in the first quarter, explorers fell short of spending their full planned budgets for the period because of these shortages. This means, according to energy analyst Joseph Triepke, that the planned increases in production could be delayed into 2018.

This won’t be good for prices, as the increase will likely turn out to be bigger than previously expected. A surprise build in supply will affect prices, and lower prices will affect everyone from drillers to sand miners. So, the oilfield service industry largely remains an uncertain place despite its post-crisis rally, at least from investors’ perspective. From the perspective of the oilfield service providers themselves, the times are good and may even get better still before they get worse.

By Irina Slav for Oilprice.com