Flood of New Cash Sustains US Oil Firms; Energy Dealmakers Gripe

Reuters via Rig Zone ^ | May 20, 2015 | Anna Driver & Terry Wade

[thackney]

U.S. oil companies, still smarting from the crude price rout, are attracting a wave of new investment from unlikely sources - hedge funds and private equity firms flocking to the energy market for the first time to bet on a rebound.

By pouring billions of dollars into energy shares and bonds in the past few months these newcomers, dubbed "energy tourists" by Houston's seasoned dealmakers, have thrown a lifeline to scores of companies that a few months ago looked like potential targets for bigger rivals or distressed debt and restructuring specialists.

"You've got generalist funds that have never invested in energy coming out of the woodwork," Michael Ames, an energy investment banker at Raymond James, told a meeting of oil and gas executives this month.

So far this year, 40 oil and gas companies raised $18.7 billion in new share sales, while 35 firms issued $26.4 billion in debt in the first four months, Thomson Reuters data show. The share sales are the highest in at least 15 years while bond issuance is on track to be the heaviest in three years. Ames estimated private equity firms have raised about $35 billion in dedicated U.S. energy sector funds in the past six months.

Among those that see opportunity in energy are distressed investor Marc Lasry at Avenue Capital Group and hedge fund Och Ziff Capital Management Group LLC.

With record-low interest rates and stock indexes near record highs, energy assets are one of the few sectors to offer a significant upside because of heavy losses of more than 50 percent suffered during the crude price slide, investors say.

But local veterans, mindful of past busts, worry a 34 percent rise in U.S. crude since mid-March to nearly $60 a barrel might not continue....

"There's too much money in the system,"...

[thackney]

excerpt for Reuters

[elpadre]

basic economics says to get the price at the pumps down and let the consumer savings stimulate the overall financial condition of the nation.

[thackney]

And how do you suggest getting the price down? Less taxes and regulations would help.

[The Working Man]

By pouring billions of dollars into energy shares and bonds in the past few months these newcomers, dubbed “energy tourists” by Houston’s seasoned dealmakers, have thrown a lifeline to scores of companies that a few months ago looked like potential targets for bigger rivals or distressed debt and restructuring specialists.

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I’m getting more and more cynical each day, but with that being said... Couldn’t this little statement actually be the ‘real’ reason oil prices crashed?

As for myself it ‘feels’ right to me.

[thackney]

Couldn’t this little statement actually be the ‘real’ reason oil prices crashed?

Prices crashed because production grew faster than consumption, and it did for an extended period of time.

Production grew rather quickly because the prices were high enough to justify spending more than before on marginal portions of oil plays that at lower prices would not be economic.

With significant money as a return on investment, in a situation lasting for years, more investment dollars are going to enter the industry. Just like any industry; it is how a market responds to price increases.

[elpadre]

as the price of crude drops the prices at the pump should drop as well - savings realized should not go back to the oil industry or taxes, IMO. Consumer spending is the best medicine for the overall economy.

[thackney]

as the price of crude drops the prices at the pump should drop as well

The price of gasoline did drop with the price of oil. Do you remember the prices last summer?

Gasoline prices started rising again because oil price rose off the bottom, along with the EPA mandated summer fuel blends.

[elpadre]

agreed, but is that what is happening now? “Experts” in the field are saying the low pump prices are having an adverse effect on the economy and calling for adjustments to off-set,or words to that effect.

[thackney]

but is that what is happening now?

I don't think I understand your question.

“Experts” in the field are saying the low pump prices are having an adverse effect on the economy

We are the third largest oil producer in the world. We also have significant parts of economy producing equipment for oil production around the world. Lower oil prices resulting in lower spending by oil companies does noticeable effect our economy. Not all is directly related, companies like Caterpillar has lost significant business due to lower oil prices.

[Lorianne]

When are we going to be bailing out these hedge funds and private equity firms ?

[thackney]

Sadly, some have already begun that conversation for this industry, again....