Energy Companies Join The Capital Party

The energy industry, which just recently seemed to have so much money that it didn't know what to do with it, has joined the market rush to raise capital with several companies going to the secondary market over the last few weeks. This is more evidence of an easing of the credit crisis. (Read The Bright Side Of The Credit Crisis to learn about the credit crisis from a fresh perspective.)
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Equity Issuance
Most of this capital is in the form of equity issuance - something that will help recapitalize the sector away from too much leverage.

The industry is using the funds to pay down credit lines that are either close to coming due or have become an issue in investors' minds. Companies are also using the cash to close gaps in capital programs, so they will have the cash to finish exploration and development programs.


Companies Issuing Millions Of Equity Shares
Anadarko Petroleum (NYSE:APC) issued 30 million shares at $45.50 per share. Most investors feel that equity offerings are bad news because they dilute current shareholders' stake in the company. Anadarko Petroleum had 460.4 million shares outstanding prior to the offering, and the deal will increase its share base by 7.5%. Long term, however, this painful medicine might be just what the company needs to get it past the credit crunch so it can pay down debt or finish its capital program and meet production growth targets.

GMX Resources (Nasdaq:GMXR) also issued equity in May. The company sold 5 million shares at $12 each. GMX said it was using the proceeds to pay down a credit line it was utilizing to fund operations. The company had drawn $145 million on this credit line as of March 31. Issuing equity was a solid move by the company, as it had a little too much leverage in its capital structure. Although the company was in compliance with its bank credit line covenants, GMX disclosed that it was in violation of the minimum tangible net worth covenant of its senior note. The note holder waived compliance with the covenant.

Penn Virginia (NYSE:PVA) also raised equity to pay down its credit line, issuing 3.5 million shares at $19 per share. The company had borrowed $390 million on this line as of March 31.

Some Companies Raise Capital Using Other Methods
Quicksilver (NYSE:KWK) recently sold a partial interest in its Ft. Worth Basin properties in Texas to Eni SpA (NYSE:E) for $280 million. Although Eni is an Italian oil company, it has existing properties in the U.S., including the Longhorn Field that it owns along with Nexen (NYSE:NXY), a large Canadian oil company. The field is expected to begin production in July.

Bottom Line
Energy companies recently jumped into the rush to raise equity capital, and the ease with which so many companies are raising this capital may indicate that the credit crisis is easing and getting close to an end.

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