[Editor's note: A version of this story appears in the January 2020 edition of Oil and Gas Investor. Subscribe to the magazine here.]

The Dallas Fed might seem an unlikely source of unfiltered, explicit color commentary about the oil and gas industry. In fact, that’s what Twitter is for.

But unidentified executives at 156 oil and gas firms, surveyed by the Dallas Fed in September, responded with a sense of maturity and insight while collectively bellowing, “ya basic!” at a variety of institutions, entities and each other.

“Over $130 billion of junk status bonds are coming due after 2020 over a two- year period for those that got in the treadmill drilling business,” one executive said. (Drilling Treadmill, coming soon from Sharper Image.)

Another complained of boorish New Mexico protestors who despise fossil fuels but “want our money.”

The U.S. Energy Information Administration (EIA) took a few hits over its DUC (drilled but uncompleted) estimates, including this succinct observation: “The EIA has no clue.”

Another said producers were engaging in self-sabotage. “We cannot have it both ways: There cannot be a flood of Permian production which depresses global commodity prices if capital inflows (i.e., new equity and debt issuances) are at all-time lows,” an executive said. “Producers must reduce capital expenditures, which will have a positive effect on medium-term (two- to four-year) commodity prices.”

And, of course, several executives also pointed to the capital markets, which lately have shunned E&Ps.

Alas, friends, Permians, landmen, lend me your ears: I come to bury the market, not to praise it.

The Saudi Aramco IPO may seem an affront to many in the oil and gas world as its value soared to $2 trillion on Dec. 12. But this is merely investment thrill-seeking. The market demands free cash flow, yet Aramco has been priced at a premium to global oil majors with significantly higher yields. As Bernstein Research noted Dec. 11, “Aramco should trade at a discount rather than a premium to the supermajors.”

But Aramco’s IPO is a classic elephant-in-a-matchbox scenario. Investors swept up in the awe of the world’s largest land IPO aren’t looking for greatness in matchbox-sized E&Ps.

Why? Because of stats like these: In the past five years, U.S. energy companies have led all other industries in defaults, according to RapidRatings, a financial analytics company.

The market already clamped down on E&Ps in 2018, a year in which follow-on equity offerings were down 73%, according to Barclays. In 2019, upstream IPOs were virtually nonexistent.

“I think Brigham Minerals was the only upstream E&P company to IPO in the U.S. in 2019,” Hillary H. Holmes, co-chair of Gibson Dunn’s capital markets practice, told Oil and Gas Investor.

Blank-check companies continue to pop up, including Alussa Energy Acquisition Corp.’s IPO that eventually tallied $287.5 million.

Yet E&Ps with assets in hand remain radioactive. In the coming year, public companies may face a better chance of being acquired and taken private, if a mini-trend continues to develop from 2019.

In October, private-equity-backed Citizen Energy said it would buy Roan Resources Inc. for $1 billion in cash, rip off its NASDAQ ticker and let it enjoy some private operator time.

In the midstream, companies already have felt private equity’s love, as Buckeye Partners LP and American Midstream Partners (now Third Coast Midstream) both broke out of their public glass houses.


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Investors remain fickle beings. If not backing dependable oil and gas, what are they putting money into?

Would you believe, esports? For those with a life, esports is competitive video game playing with a $1.1 billion global market, according to Bloomberg.

On Dec. 9, Denmark’s Astralis became the first esports team to launch an IPO. It slightly exceeded its goal of raising US$22 million.

Reality may be breaking down, but at least it won’t be boring. Astralis’ game of choice is Counter-Strike: Global Offensive (is that anti-union?), and the team is currently world champion.

In fairness, Astralis differs from other tech-centric companies such as Tesla Inc. in two respects: It has a winning record, and it appears unlikely to lose $1 billion in a seven-month period.

As an energy executive told the Fed, the market is so driven by events of the moment it “makes strategic planning more like strategic speculation.”

Perhaps the industry’s best hope is really big data—especially if there’s any hope of a deep run in the playoffs.