Five Finance Issues to Watch in 2024

While consolidation has everyone’s attention, analysts, attorneys and investment bankers will also have their eye on five other issues in 2024.

1. After three very active years in lucrative private equity E&P exits, private equity monetization of E&P assets is expected to slow in 2024.

“There’s just not the opportunity set to go after because of the volume of deals we’ve seen over the last three years,” said Andrew Dittmar, senior vice president at Enverus Intelligence Research. “What you’re going to see, I think, is a pretty rapid roll-up of the remaining smaller core Permian positions, but most of those are going to have less than 100 net remaining locations and are going to be smaller-size deals that what we saw in the last few years.”

EnergyNet CEO and President Chris Atherton also said he expects far fewer exits by private equity.

“They’re reloading right now, but it’s not like there’s another wave [of exits] coming.… The queue of companies isn’t as plentiful,” he said. “The private equity overhang might be over.”

2. Behind closed doors, attorneys will hustle to take advantage of a 1940s federal law that is expected to exempt oil and gas funds from coming Security and Exchange Commission regulations and transparency requirements for private equity and hedge funds.

Haynes Boone partner Vicki Odette said her law firm is seeing some uptick in oil and gas investment interest, partly because of the protections offered in the 1940 Investment Company Act.

3. Energy stocks did well in 2023, and some expect more energy IPOs in 2024.

“Coming on the heels of five energy IPOs so far in 2023, the pipeline of energy and energy-transition IPOs is building at the healthiest rate we’ve seen in a few years,” said Ryan Maierson, partner at Latham & Watkins, a law firm active in IPO work. “Potential IPO candidates run the gamut from traditional upstream to oilfield service companies to renewable energy and distributed energy providers.”

Sonu Johl, managing director and co-head of E&P Investment Banking at Raymond James, said that after a few years of skepticism around small-and mid-cap energy IPOs, attitudes are starting to change.

“IPOs are back,” he said. “There’s a lot of institutional demand looking to play in upstream energy.”

4. With small- and mid-cap E&Ps facing sizable maturity walls for their high-yield bond debt, investment bankers expect these companies to seek high-yield refinancing in late 2024.

Jay Salitza, managing director of oil and gas investment banking at KeyBanc Capital Markets, said $3.8 billion in high yield bond debt held by small- and mid-cap E&Ps is set to mature in 2024, and that will skyrocket in the two years after that; $7 billion of this debt it set to mature in 2025 and $16 billion is set to mature in 2026.

“I think the senior bond market is going to be very active in 2024 for E&P companies,” Salitza said, adding that they will be helped by healthy balance sheets and further incentivized to seek refinancing if the Federal Reserve Bank cuts interest rates.

5. A blue state legislature might shake things up with a Fossil Fuel Divestment Act in California that would mandate that state pension funds withdraw from oil and gas funds. The bill may have a hearing in July and, unsurprisingly, it is unpopular in the E&P community.

Dan Romito, a partner at Pickering Energy Partners focusing on ESG strategy and implementation, said an abrupt withdrawal from oil and gas isn’t feasible with such a high demand for fossil fuels.

“Ironically, California imports about 55% of its crude oil from Russia, Ecuador, Saudi Arabia and Iraq,” Romito said. “If emissions were really that important to the state, they would reduce that degree of foreign reliance and tone down the virtue signaling. Divestment only means that a stakeholder loses their seat at the table, weakening future decarbonization efforts over the long term.”

RELATED

Consolidation Seen as Only Major Change on E&P Finance Radar for 2024