A year ago, Wall Street investment bankers told Oil and Gas Investor that the public capital markets for E&P and oilfield service companies were reopening on a selective basis. And they were right. M. Scott Van Bergh, managing director and co-head of Salomon Smith Barney's energy finance group in New York, reported last fall that through the first nine months of 1999, $3.2 billion of E&P equity offerings came to market. "This year, through mid-September, not only did $3.2 billion of E&P equity deals get done, but so did another $4.6 billion worth of oilfield service equity offerings-a significantly higher figure for this sector than at this time last year." With commodity prices and the balance sheets of E&P companies improving so quickly this year, the need for equity by the upstream sector wasn't as great as anticipated, explains Van Bergh. Also, as commodity prices improved, the views of upstream companies about their stock market valuations moved higher than where their stock prices actually were, hence those companies were less willing to issue equity. "In addition, institutional investors have been relatively selective in their support of E&P equity transactions because of that sector's sensitivity to commodity-price weakness." On the oil-service side, companies like Nabors, Weatherford, Diamond Offshore and Global Marine were able to take advantage of the window for unusually good zero-coupon convertible financings during second-quarter 2000, says Van Bergh. There was also a willingness on the part of service companies to do such equity transactions because of significant, time-sensitive capital spending needs. Schuyler M. Tilney, Houston-based managing director, global energy and power group, Merrill Lynch & Co., noted last year that through the first three quarters of 1999, E&P stocks as a group were up 36% while the S&P 500 edged up only 4.5%. This year, from March through early September, E&P stocks were up about 70% and oil-service stocks, about 25%, he says. The S&P 500, meanwhile, remained relatively flat. "Given these market moves, plus $35-plus oil and $5-plus gas prices, the energy equity financing environment looks very attractive." A spate of oil-service initial public offerings is planned for the fourth quarter-including those of Oil States International, W. H. Energy, Asco and Novistar. Two others-Chiles Offshore and Hydril Co.-were able to price in September, after a false start during the summer. On the E&P side, IPOs for Energy Partners Ltd. and Westport Oil & Gas are also on the front burner. Says Tilney, "With the recent weakness in technology and telecom stocks, portfolio managers are in a sector rotation that has put energy equities in greater favor this fall." A year ago, the private placement market also expected a pickup in transaction flow. Cameron Smith, senior managing director of Cosco Capital Management LLC, a New York-based financial intermediary and advisor to North American energy companies, expected to complete more deals during 1999-2000, at higher values, than it did in 1998. Cosco did. Between October 1999 and this September, the firm was involved in five private deals-a divestiture and four private placements-valued at more than $150 million. In the previous 12 months, it participated in just one $20-million private equity deal, focusing instead on M&A transactions. The recent private placements included a $12-million equity infusion for TriQuest Energy Corp., a now publicly traded Calgary producer; a similar $8-million deal for privately held Action Energy Corp., another Calgary operator; a $40-million mezzanine commitment for Mannix Oil Co., a private Tulsa-based producer; and a $72.4-million mezzanine financing for Crutcher-Tufts Resources LP, a Bakersfield, California-focused private E&P company based in New Orleans. "What we've been able to do during the past year-relative to the public markets-is negotiate prices per share more favorable to both small-cap issuers of stock and the private equity funds buying that stock," says Smith. His near-term outlook? The public markets for equity and debt during the final quarter of this year may finally become receptive to small-cap stories. "If that proves true, the window for private capital will start to close, hence we'll see less financing volume and once again more M&A advisory work and project debt deals."