HOUSTON, July 9, 2015 /PRNewswire/ -- After a slow start to oil and gas initial public offerings (IPOs) in the first quarter of 2015, the second quarter boasted an increase in capital market activity, potentially signalling more to come for the remainder of the year. As of late June, four North American oil and gas IPOs generated a collective US$2,326m in the second quarter, a 100% increase in volume and a 88% rise in value compared to the first quarter of 2015, according to data in a report: EY Global IPO Trends: 2015 Q2.
"During the first quarter of 2015, sponsors appeared to be in a wait-and-see mode with respect to some of the commodity price volatility as well as the availability (and attractiveness) of the public markets," said Greg Matlock, Master Limited Partnerships (MLP) leader for Ernst & Young LLP in the US. "Though some of that sentiment still exists, IPO performance has been positive in the second quarter, as has the outlook for future activity."
While the second quarter certainly saw an increase in North American oil and gas IPOs compared to the first quarter, the number of deals and proceeds generated continued to trend down year over year. During the first half of 2015, six North American oil and gas IPOs generated a total of $US3,565m in proceeds. Comparatively, the first half of 2014 saw 14 North American oil and gas IPOs raise a cumulative $ US8,408m.
"Although overall year-over-year cumulative IPO activity is lower than 2014, more oil and gas IPOs are anticipated in the second half of the year," Matlock said. "The MLP structure, which already saw a rebound in Q2 2015, will also continue to play a unique and important role in today's volatile energy market."
Notably, three of the four North American oil and gas IPOs issued during the second quarter were MLPs. This was only slightly lower than the four MLPs issued during Q2 2014. Compared with the first quarter of 2015, this denoted a 200% increase in the number of MLPs. Likewise, the proceeds generated by MLPs rose from US$1,238m in Q1 to US$2,323m in Q2 2015.
"MLPs provide a low-cost, alternative form of capital for expansion and growth," Matlock said. "However, due to recently proposed regulations, it is essential for any companies considering the MLP format to stay apprised of potential changes in the qualification for the structure."
In May 2015, the Internal Revenue Service released proposed regulations on what is considered "qualifying income" for MLP purposes. Then, on June 24, US Senators Chris Coons (D-DE) and Jerry Moran (R-KS), along with representatives Ted Poe (R-TX-02) and Mike Thompson (D-CA-05) reintroduced bipartisan legislation, the Master Limited Partnerships Parity Act, to make the MLP structure available to certain renewable energy projects.
"The IRS regulations, if enacted in the current form, could significantly impact companies with non-traditional types of income that may have wanted to access the MLP market. On the other hand, for oilfield services activities, the proposed regulations could offer a potential roadmap for qualification," Matlock said. "Meanwhile, if the Master Limited Partnerships Parity Act is enacted, renewable energy sponsor companies could leverage the MLP structure to access higher valuations and a potentially lower cost of capital. On all of these proposed regulations, further monitoring is necessary to truly determine their impact."
Notes to editors
About the data
Analysis included on this press release includes all deals listed up to mid-June and EY's expectation of deals that will close in the rest of the month. Data sourced from Dealogic as of 16 June 2015. January 2015 through June 2015 (i.e., 2Q15 YTD) IPO activity is based on priced IPOs as of 16 June and expected IPOs by the end of June. M&A data is sourced from Dealogic as of 17 June 2015.
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