In the wake of the market crash in 2008, many public-equity investors are still favoring easily monetized, traditional securities over private investments in public entities (PIPEs) and overriding royalty interests. Why? Liquidity, liquidity, liquidity. “Institutional investors want to know that their equity isn’t locked up—this is the primary catalyst that shut down the PIPEs when the financial market crashed,” explains Adam Connors, director with California-based C. K. Cooper & Co. Consistent PIPEs in the E&P space started to dry up in late ‘08/early ’09, then all equity financings essentially disappeared. In late 2009 public offerings and registered direct deals reemerged and flourished, largely because these issues were readily trading; companies that weren’t shelf eligible just weren’t generating interest due to the illiquidity risk, Connors says. “The shift is a product of two things. One, there’s a lot of volatility in the markets. We see it in how bipolar commodity prices are and in the macro-economic trends that have emerged during the past few months.” People are still skittish about the economy overall. When news is released these days, especially of a geopolitical nature, there is a much greater variance in commodity price swings. As a result, the safer bet for institutions to appease their needs/investors is to stick with more liquid options. “They really like companies that have adequate volume. This would let them rapidly get out of their position—if they had to—with a velocity that would meet their fund’s appetite for risk. The retail folks are more flexible, but as companies mature they tend to want the institutions to make up a larger portion of the shareholder base.” Are PIPEs a thing of the past in E&P finance? Not necessarily. Endeavour International Corp. just announced one of the first E&P PIPEs to cross the finish line in months: a $21.1-million PIPE via investments from Smedvig Capital, Pelmer Securities, Sanders Morris Harris and others, which included some of the E&P’s officers and directors, individual investors, trusts, pension funds, and foundations. “This one is a little different because it’s participants are already well invested in the issue. They’re fine with having their shares being locked up—typically six months or so, per the SEC—because they are essentially locked up anyway.” Connors concluded, “If there’s more stabilization in the economy and funds’ appetite for certain investments, PIPEs can get some of their appeal back. However, when this happens, investors will be commanding higher discounts for the offerings to manage that liquidity risk.” For more of Adam’s comments, see his recent video interview with Oil and Gas Investor’s E-Editor Nissa Darbonne at the Winter NAPE Video Interviews section of –Bertie Taylor, Senior Editor, Oil and Gas Investor,, 713-260-6497.