Oil and gas companies raised billions of dollars this week as they continue to grab every dollar they can to shore up weak balance sheets as commodity prices remain low. Drillers both small and large unloaded midstream and non-core conventional assets in exchange for cash, while others turned to the capital markets to raise equity. More deals could be on the way as energy companies prepare for the potential that oil prices could remain lower for much longer than anyone had hoped.
The great oil patch garage sale
One of the largest deal announcements of the past week was the sale of Antero Resources' (AR -0.13%) water business to its own MLP Antero Midstream Partners. Antero Resources will receive $1.05 billion for the assets via a combination of cash, assumed debt and Antero Midstream Partners' units. Further, it can receive two potential $125 million earn out payments in 2019 and 2020 if certain targets are hit. The net result of the transaction will improve Antero Resources' net debt-to-EBITDA ratio to a more comfortable 3.3 times while bolstering the company's liquidity to $4.3 billion. That will give the company the financial flexibility to continue to grow despite weak commodity prices.
That deal, however, was but one of several asset sales announced this week in the energy sector. In a much smaller deal, Matador Resources (MTDR -0.28%) announced the sale of its gathering and processing assets in the Delaware Basin to EnLink Midstream Partners for $143 million. Once closed the deal will boost Matador Resources' liquidity to more than $500 million as the company will have nothing drawn on its $375 million credit facility. Further, the company will lower its net debt-to-EBITDA ratio to just 1.0 times. Matador Resources now expects that it has enough liquidity to execute its capital plans in 2015 and 2016 without having to raise any capital.
Meanwhile in Canada, Penn West Petroleum sold $192.5 million in non-core properties in Alberta. The company intends to use the cash to reduce its senior debt. With this deal, the company has raised $605 million this year via non-core asset sales and $1.7 billion since it started selling assets in 2013. The net result of these sales is a $1.4 billion reduction in its outstanding debt, which is now down 40% from its peak.
A handout from investors
Not only are oil and gas companies selling assets among themselves to raise cash, but they are turning to investors for cash as well. Mining and energy giant Freeport-McMoRan, for example, announced that it has raised $1 billion in an at-the-market stock offering. In addition, it filed to raise another $1 billion in shares via an at-the-market stock offering. Further, the company is still considering a plan to sell a minority stake in its oil and gas business via an IPO to raise additional capital for that business. It needs the cash because weak oil, gas, and copper prices have cut deep into its cash flow leaving it a growing gap between cash flow and capex that can't easily be funded by debt on its balance sheet as its debt levels were already too high before prices collapsed.
Another company turning directly to investors for cash this week was Parsley Energy (PE). The company is seeking to sell up to 13 million shares, which when combined with underwriter options could result in almost 15 million shares being sold. At Parsley Energy's current stock price that's almost a quarter billion dollars in cash that it's seeking to raise, which is a lot of money for a $1.6 billion company. Parsley Energy intends to use the funds to repay outstanding borrowings under its credit facility as well as fund its capital program.
There was a clear theme running through all these transactions, which is that energy companies are raising cash to reduce their debt. Some like Antero Resources and Matador Resources are turning to other energy companies as they are looking to trade non-core assets for cash, while others like Parsley Energy are looking to investors for cash as they are selling stock. The overriding goal of these transactions is to bolster their balance sheets so that they can survive a scenario where oil prices remain lower for much longer than the industry had anticipated.