The First Shale IPO Since 2017 Is Failing to Impress Wall Street
Michael Tobin and Sergio Chapa Wed, March 17, 2021 yahoo.com
(Bloomberg) -- If the first initial public offering of a U.S. shale driller in four years is any indication, Wall Street is still souring on the U.S. oil and gas patch.
Even a natural gas explorer backed by private-equity giant Blackstone Group Inc. couldn’t raise the capital it had expected. Vine Energy Inc. sold 21.5 million shares for a total of $301 million, according to a filing with the U.S. Securities and Exchange Commission on Wednesday. It had planned to raise as much as $361 million.
The IPO miss underscores how much investor appetite for the cash-intensive shale industry has waned after years of poor returns and a pandemic-driven market crash in 2020. While oil and natural gas prices have rebounded since last year, Wall Street has little interest in seeing a shale boom once again. The chiefs of America’s shale giants have been exercising caution and preaching self-control in calls with analysts over the past several weeks.
“Vine being able to complete the IPO, that in itself is a victory,” said Ed Hirs, an economics professor and energy industry expert with the University of Houston. “The U.S. shale plays have not had any returns over the past 10 years. Vine was swimming upstream.”
Vine has certainly had better luck than several shale explorers that went bankrupt or have been completely shut out of equity markets, while banks cut their credit lines.
But to get the deal done, Vine had to take a lower price than sought, while Blackstone and its affiliates stepped in with a $60 million purchase.
The planned price range was $16 to $19 apiece, but the shares went for $14. So, Vine also sold a bit more than the 19 million shares it had intended to offer to partly offset that.
The Plano, Texas-based driller focused on the natural gas-rich Haynesville formation of northern Louisiana said it plans to use part of its roughly $281 million of net proceeds to pay down debt, according to the filing.
this is interesting. I have wells operated by Vine, and they are a good company to work with, from a royalty owner's perspective.
But they are a narrowly focused entity, not typical IPO stuff, so I'm not too surprised by this. I have no way to look at their financials and understand if they are a good buy or not, but Wall Street thought they were good enough for several hundred million at $16 a share. Will be interesting to see where their stock goes from here. With the current prospects for NG, and considering that they have purchased a good deal of quality HA blocks, they may do well for the next few years. They are drilling aggressively what they own. No idea how many more wells they can drill within their holdings. My only experience with them is in Northern Sabine Parish, where they have drilled 2 CULs that have had a great yield curve for the first 2 years, and are currently fracking 3 more. Because this acreage is good for both the HA and the Lower Bossier, they can likely drill several more.
But it's hard to know where they go from here.
I'm curious regarding the timing. Several other HA operators have in the past signaled interest in going public but at that time the future didn't look as good as it does in coming years. Why Blackstone chose to be the first privately held HA operator to float an IPO now seems a little premature.
They tried it once before and failed two years ago, but did not pull the Registration statement from SEC, but let it sit there for months. Problem is leverage and bank determination and risks of PV-10 as impacted by price of NG. and continued spread of institutions not making new investments in anything related to fossil fuels.
Thanks for the background. All these private equity funded private operators are looking for an opportunity to monetize the investment. Private Equity companies never planned to be long term E&P companies. Were just looking to go public and book a profit. I think the Vine IPO was premature. From what I'm reading, the near term future could be much improved but that depends on regulations and the industry's ability to adapt. The industry wasted a lot of time and opportunities over the last decade. 2021 should see the Final Investment Decisions on several Gulf Coast LNG projects and continue strong demand from Mexico as the virus recedes in our rear view mirror. The new normal may not be the old normal but it will be a big improvement over 2020.
Price was reduced to $14. S-1 indicated a pricing range of $16 to $19. Would not work at those prices.. Plus, Blackstone had to invest $60M new cash in deal to get it done. Good people, good assets, but horrible market to get anything done other than tech.
Haynesville shale gas producer Vine Energy Inc. tested the market's waters in the first oil and gas IPO in years and found the temperature tepid.
Vine, led by former Encana executives and backed by investment giant Blackstone Group Inc., priced its initial stock offering $2 below the expected range at $14 per share late March 17, and investors clipped another 1% off Vine shares in the first day of trading March 18.
While Vine is marketing itself around low costs for extraction and its proximity to both the Henry Hub pipeline nexus and Gulf Coast LNG terminals — banking on a worldwide expansion in natural gas demand — investors had little appetite for another heavily indebted, capital intensive, shale gas driller despite the success of Appalachian gas producers' stocks over the past year.
Another advantage, Vine said, is that it has no minimum volume commitments to its midstream gathering providers and no firm transportation agreements with pipelines, giving it the flexibility to throttle gas flows to better match demand while keeping costs down.
According to Andrew Dittmar, an analyst at oil and gas market data firm Enverus, Vine also has the advantage of being a pure-play Haynesville gas entity. The only other driller with that focus is Comstock Resources Inc., he said.
"The mid-cap space on the public side is just pretty saturated," Dittmar said. "I don't know anybody really wants to try to work their way into that without a really differentiating factor ... I don't know if there's any hidden niches that aren't already pretty well-covered."
Vine is carrying $1.22 billion in debt, most of it due in 2023, with a debt/EBITDA ratio of more than 5x, according to S&P Global Market Intelligence. After some refinancing, S&P Global Ratings raised its rating from CCC- to CCC+ but was still concerned about the looming 2023 debt wall.
"Although we expect the company to generate enough free cash flow to pay down its revolver in 2021, the company will likely have to find other sources of liquidity to offset the anticipated decrease in its [reserve-based lending facility]," Ratings said Jan. 21. "We also believe the refinancing of Vine's unsecured notes due April 2023 could prove challenging, as current yields on the company's unsecured debt remain high."
In 2020, Vine reported an unadjusted $252.2 million in losses with $42.8 in positive free cash flows after making interest payments — a non-GAAP measure — according to the IPO prospectus.
Built around a chunk of Haynesville Shale acreage purchased for $1.2 billion from Royal Dutch Shell PLC in 2014, Vine is a conglomeration of its core Vine Oil & Gas LP and two smaller gas firms. Pro forma for the combination, Vine Energy averaged 892 MMcf/d of production in 2020 with Vine Oil & Gas contributing 658 MMcf/d, an increase of 20% over 2019 for the Vine unit, according to the prospectus. At the same time, its average realized price for that gas dropped 7% to $2.25/Mcf.
Does anyone know of a link to an investor presentation for Vine? I find none on their website, only an ESG one. When they do an IPO, it seems they would need a presentation; if this exists, is it public?
Normally would not see IPO related presentations made public / that info going to the Wall Street moguls and minions via that more restricted network.
But with now being "public", we will see more presentations posted for all to see.
Here is the prospectus as per SEC / hope you can open it
Thanks, Rock Man. The link worked fine for me. I didn't review the document as I don't pay much attention to financial data but I did note that the image of the horizontal well groups show both Haynesville and Mid-Bossier wells in groups of six. I take that as Vine claiming both economic intervals over their leasehold and an intention to continue the six horizontal slots per section that has been the norm across most of the development since high intensity fracks became common place. And, yes, now we will see quarterly reports and end of year results and new year projections. More data always makes me happy. :-)
I have land in Sabine Parish - 2-9N-12W operated by Vine, and they are currently drilling 3 wells in both the Bossier and Haynesville formations, with more already set up with approved CULs for each in the future. They drilled their first 2 wells more than 2 years ago, and I posted on this site a comment about the "flattened curve" of the decline rate for each of those wells. Basically, the decline rate over 24 months were more comparable to a decline rate of 12 months for the typical HA well in DeSoto Parish.
Wouldn't be surprised if they are usng "choke managment' to more slowly produce the wells and minimize decline.
Basically just smaller production choke orifice size / holding wells back a bit.
We have discussed Steve's wells before and a restrictive choke program may be utilized but does not account for the surprising depressed decline curve. Those wells are drilled into an area with an extensive natural fracture system created by a fault. Prior to the approval of cross unit laterals, faults were a problem particularly if there was much of a throw. More of a depth differential than a mud motor could navigate. Now with HC wells, operators can drilled the "toe" of their wells up to the edge of faults, on both sides. As the major faults in the Haynesville Shale fairway run NE to SW, you get an interesting "staggered" lateral spacing from multiple wells drilled along the fault line.