This IPO Market Will Triple This Year

Matthew Carr By Matthew Carr, Emerging Trends Strategist, The Oxford Club

Market Trends

Timing is everything…

Especially when it comes to initial public offerings.

Of course, the IPO market’s coverage is typically dominated by darlings, like Snap Inc. (NYSE: SNAP) and MuleSoft (NYSE: MULE).

They bring a lot of excitement, and everyone plows in… Which is why both Snap and MuleSoft saw their share prices jump more than 40% on the first day of trading.

And tech companies are always going to demand the most coverage when they go public.

But that doesn’t mean those are the only IPOs to play. Or that energy sector IPOs are dead.

In fact, quite the opposite is true.

It is true that as crude spent two years in decline, a lot of energy companies postponed going public.

In 2016, there were 13 energy IPOs worth about $2.23 billion total.

This was the lowest value since 2009, during the financial crisis. And it was a huge decline from 2014, when oil was trading above $100 and the market saw 44 energy IPOs worth $14.15 billion.

But that also means many companies are now racing to go public. And 2017 is expected to be one of the busiest for energy IPOs in years.

First, let’s look back…

2016’s Hits and Misses

Unlike tech companies, which control a certain market or product space when they go public, energy companies must compete against their bigger counterparts. They are adding to a larger quilt of companies vying for investor dollars and resources.

This means the companies aren’t going to be $20 billion-plus when they go public. They’re going to be a lot smaller. And that means more volatility, especially as the underlying commodity moves.

It’s important to note that basically all the energy IPOs in 2016 took place in August or later. That was after crude had bottomed and started to rebound…

And as with most IPO markets, there were hits and misses. But the great thing about energy IPOs is the rules don’t change in energy investing. A tech IPO can rise on hype and fall on disillusionment. Resource investing rules apply no matter how old the company is.

Extraction Oil & Gas (Nasdaq: XOG) was the first exploration and production IPO in more than two years. WildHorse Resource Development Corp. (NYSE: WRD), operating out of the Eagle Ford, IPO’d a month later.

These were two of the biggest IPOs in the fourth quarter.

But each is down more than 20% since going public.

However, it’s worth mentioning that after a thumping following its fourth quarter results on March 13, shares of Extraction Oil & Gas are rebounding, currently back above $16.

Now, few areas have excited investors more than the Permian Basin. And in terms of 2016’s energy IPOs, this was an important factor as well with Permian Basin operator Centennial Resource Development (Nasdaq: CDEV). So far, shares have risen 83.7% since it went public.

We’ve also seen positive momentum from integrated oil field services company Mammoth Energy Services (Nasdaq: TUSK). Though shares are down from their peak at the beginning of March, they’re still up more than 40% since Mammoth’s IPO.

And of course, we’ve written here before that pipeline operators tend to do well regardless of the price environment.

Of last year’s energy IPOs, the star was pipeline operator Noble Energy (NYSE: NBL) and spinoff Noble Midstream Partners (NYSE: NBLX)…

Shares of Noble Midstream have nearly doubled since the company’s mid-September debut.

Finally, as drilling picked up in the second half of 2016, Smart Sand (Nasdaq: SND) IPO’d. As was the case for a lot of stocks in the sector, its shares were off their peak at the beginning of March, but the fracking sand company shares are up 14% since its IPO.

Energy IPOs Heat Up and Flame Out in 2017

After hitting a more-than-a-decade low in February 2016, the price of crude doubled. That means expectations for the energy IPO market are high this year.

In fact, as many as 40 energy IPOs are expected to take place this year, triple the number in 2016.

And a little more than 20% of all IPOs in 2017 will be in the energy space…

Already we’ve had IPOs from Permian Basin producer Jagged Peak Energy (NYSE: JAG), Keane Group (NYSE: FRAC), Kimbell Royalty Partners L.P. (NYSE: KRP), Ramaco Resources (Nasdaq: METC) and ProPetro Holding Corp. (NYSE: PUMP).

But as I said earlier, timing is everything.

Crude prices peaked at the beginning of March. Not only did that cause a pullback in the companies that IPO’d in 2016, but it caused a pullback in the energy IPOs we’ve seen so far this year…

On the horizon, there are IPOs on the calendar from Liberty Oilfield Services, Solaris Oilfield Infrastructure, Warrior Met Coal and Select Energy Services.

I don’t believe in investing the day of a company’s IPO. I think you can almost always get in later at a better price. And for energy IPOs, if you stick to rules like “low-cost fields are key,” “pipelines tend to do well regardless of price” and “increased drilling helps oil field services,” you set yourself up for success.

Plus, the great thing about energy IPOs is it’s not often we see a bunch of hype… though occasionally we do. Next week, I’ll cover a private company that’s looking to IPO and is dominating headlines.

Good investing,


P.S.  I don’t believe in investing in a company the day of its IPO. But I do believe there’s money to be made in the pre-IPO market. In fact, our friends at Early Investing LLC just gave their subscribers an opportunity to land double-digit gains on Snap. To learn more about investing in the private equity market, as well as how to return 100 times your original investment, click here now.