US energy majors line up for IPO as sector regains popularity

Energy companies are planning to go public in the US as soon as possible, as a sector that has long fallen out of favor is benefiting from renewed investor demand for companies that generate steady cash flows, rather than prioritizing long-term growth.

Texas-based oil and gas producer TXO Energy Partners became the first energy company to list in the United States in more than six months in January, and another nine energy and utility companies have publicly filed or updated IPO documents in the last 90 days , according to data from Renaissance Capital.

If those listings go ahead as planned this year, 2023 would already be the busiest year for energy IPOs since 2017, and bankers expect another spate of deals in the coming months.

The numbers mark a resurgence in a sector that has struggled to raise money in recent years, suffered from volatile oil prices, a hangover from a decade of debt-fueled drilling that has caused huge losses, and an aversion to polluting companies among green investors.

“What we’re seeing now is much better engagement and a broader group of investors making themselves available for IPOs in the energy sector,” said Justin Bowman, head of energy equity markets at Stifel. “The pipeline continues to build with names that . . . haven’t really been able to tap into the IPO market in recent years.

Plunging stock markets and rising interest rates made it difficult for companies in all sectors to go public over the past year — and only two energy companies did so — but business from the sector has been muted even in the oil and gas boom years of 2020 and 2021 Producers are still suffering from the fall in prices caused by the pandemic.

Energy and utilities companies accounted for just three of the more than 270 traditional IPOs that raised more than $100 million in 2021, according to Dealogic. They account for more than a third of the current public pipeline of similarly sized deals.

A rebound in commodity prices in the wake of Russia’s invasion of Ukraine and a newfound focus on balance sheet discipline have made energy the best-performing sector in the S&P 500 over the past two years. Supermajors like Exxon and Chevron, as well as many independent producers, reported record profits in 2022, which they used to pay down debt and return cash to shareholders through dividends and share buybacks.

Traditional producers of fossil fuels and specialists in renewable energies benefit equally from the increasing demand on the capital markets.

TXO, which raised $100 million last month, followed the playbook of already publicly traded oil and gas producers who have recently focused on returns on capital, promising to return all available cash to investors each quarter.

Atlas Energy Solutions, which filed preliminary documents in January, reported net income of $217 million in 2022 and said it intends to “return capital to our shareholders on a regular basis.” The company that supplies sand for fracking is said to raise hundreds of millions of dollars.

The deal boom will also hit Canadian markets, with French supermajor TotalEnergies planning to spin off its Canadian tar sands business to the Toronto Stock Exchange later this year in what analysts say will be one of the biggest IPOs the TSX has seen in years.

Meanwhile, renewable energy producers are attracting growth-oriented investors who previously focused on areas like software that have suffered from the recent downturn.

“Tech investors are jumping in and looking at solar and renewables companies because they believe there is a very long-term growth history for these industries, much like the software-as-a-service companies did a few years ago said another senior ECM banker.

Israeli group Enlight Renewable Energy raised nearly $300 million this month through a secondary listing on the Nasdaq, while MN8 Energy and REV Renewables both plan IPOs.

The trend also benefits companies in energy-related sectors. Last week, California-based solar panel technology maker Nextracker completed its biggest IPO of the year to date.

Graham Price, senior equity research associate at Raymond James, said Nextracker’s success has been helped by the Inflation Reduction Act — the sweeping new US climate law that will pump $369 billion in tax credits into clean energy over the coming decade. He said the subsidies would lead to increased capital market activity among green energy companies.

“I think the Anti-Inflation Act has probably already spurred some activity,” he said. “Some of these manufacturing loans are large enough that they can be scaled up and should be able to bring this profitability schedule forward and attract interest from more conservative investors.”