More Cash Flowing to the Oil Patch

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This past spring, the crude credit crunch was in full swing. Exploration and production companies like McMoRan Exploration and Stone Energy were singing the borrowin' base blues. Capital was scarce, leading to deeply dilutive equity offerings by folks such as Brigham Exploration (Nasdaq: BEXP) and Delta Petroleum (Nasdaq: DPTR), and a cut-rate shale sale by Denbury Resources (NYSE: DNR).

With crude oil back in the comfy $65-to-$75 range, and a return to remarkably bullish sentiment on the part of investors, the situation has improved a great deal for oil and gas companies seeking capital.

Permian player Concho Resources (NYSE: CXO) went to market with a $250 million junk bond offering this month, and ended up selling $300 million of debt priced to yield less than 9%. Continental Resources (NYSE: CLR) priced $300 million of 8.25% notes at better than $0.99 on the dollar, for a yield of 8.375%. Compare these results with Petrohawk Energy's (NYSE: HK) $600 million offering in January, at a yield of 12.75%.

Investment-grade issuers like EnCana's (NYSE: ECA) Cenovus Energy subsidiary and Royal Dutch Shell have also found the bond market receptive to their multibillion-dollar offerings.

Speaking of EnCana, remember when the Canadian company dropped its decision to divide and conquer last October? Breaking up its unconventional gas business and Cenovus, its integrated oil business, required putting new borrowing facilities in place. With the successful placement of these long-term bonds, and with a spinoff planned for the end of November, this move by EnCana is one of the strongest signs of renewed confidence in today's credit markets.

On the equity side, the biggest evidence of energy sector enthusiasm is the proposed IPO of Cobalt International Energy. The offering date has yet to be determined, so the deepwater explorer needs the good times to keep rolling, or else it risks a delay akin to the one experienced by A123 Systems, which is just now going public after registering with the SEC last August.