Capital markets favorable for oil and gas companies

All types of capital markets are now favorable for oil and gas companies, capital providers told OGJ Online, adding that financially robust companies are reducing debt, increasing the capital available for other companies. The cost of capital is less than investment returns, said L.E. Simmons, president of SCF Partners Inc., Houston.


HOUSTON, Apr. 16 --All types of capital markets are now favorable for oil and gas companies, capital providers told OGJ Online, adding that financially robust companies are reducing debt, increasing the capital available for other companies.

Frank Weisser, cofounder of Weisser, Johnson, & Co., New York, said, "Capital is very available. Oil and gas companies are generating cash flow in this commodity price environment. The strong companies actually are paying down debt."

Weisser is among the participants at a Private Equity Conference being sponsored Tuesday in New York City by the Independent Petroleum Association of America. Weisser, Johnson, & Co. has provided public and private energy clients with financing since 1991.

Drilling activity and exploration budgets are up, driven by 18 months of strong oil and gas prices. Producers' expenditures in the US, Canada, and elsewhere are on the rise, which will send some companies seeking financing for projects and for acquisitions.

Worldwide spending on exploration and production of oil and gas likely will increase more than the 20-30% forecast previously by many analysts.

Reports from a selected group of US independents compiled by Oil & Gas Journal show worldwide E&P spending will eclipse companies' outlays in 2000, barring a collapse in oil and gas prices (OGJ, Apr. 9, 2001, p. 20).

In a speech earlier this month, L.E. Simmons, president of SCF Partners Inc., Houston, said it makes sense for oil and gas companies to seek financing. SCF Partners invests in and assists management groups in building energy service and equipment companies. SCF has $340 million in private equity funds available for investment.

"The debt markets are attractive and equity markets are favorable. The cost of capital is less than investment returns," Simmons said. "You can still do investments that are well timed. It's the volatility that creates the opportunity for people to make good returns."

David Stevens, senior vice-president of Range Resources Corp.'s Independent Producer Finance (IPF), Houston, said, "Business is booming right now as far as companies looking for loans from us. Until 60 days ago, it was slow. We are closing quite a few financings this month."

IPF helps arrange financing of $500,000-$5 million for oil and gas companies, with the average deal being about $2 million. The typical client is an independent operating within the continental US.

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