Emboldened by the energy crisis, oil and gas companies look to IPO

The IPO waters may be frigid, but that isn’t stopping a handful of oil and gas companies from taking the plunge as investors take another look at the often maligned fossil fuels sector.

Of the handful of companies that filed for offerings in November, four were involved in fossil fuel exploration, management or production: MorningStar, which is changing its name to TXO Energy (TXO), BKV (BKV), Bounty Minerals (BNTY) and Permex Petroleum (OTCQB:OILCD). A fifth company, Elephant Oil (ELEP), filed in March.

Fossil fuel stocks are definitely having a moment, thanks largely to an ongoing energy crisis fueled by Russia’s invasion of Ukraine. While the S&P 500 Index (SP500) has slid 15% year-to-date, the S&P Energy Select Sector Index (IXE) has rallied 59%.

Sector ETFs have scored similar gains with the Energy Select Sector SPDR (XLE) rising 60%, the SPDR S&P Oil & Gas (XOP) advancing 52% and The US Oil ETF (USO) climbing 31%. Big Oil has likewise rallied, with shares of Exxon Mobil (XOM) and Chevron (CVX) both jumping 53%, ConocoPhillips (COP) 44% and BP (BP) 13% since the beginning of the year.

But does it make sense to invest in a sector that many had written off just a few months ago?

“The oil and gas space has expected tailwinds for some number of years ahead,” energy trends expert Jennifer Warren told Seeking Alpha, via email. “Global oil and gas demand is expected to grow, and even replacing a certain floor that underlies demand will require new drilling.”

All of the recent filers are involved in some aspect of oil or natural gas production, primarily in the US. Natural gas producer BKV, which filed for an IPO last week, is focused on reserves in the Appalachian and Forth Worth Basins, while TXO, which filed mid-month, has been operating in the San Juan and Permian Basins in Texas, New Mexico and Colorado.

Oil and gas producer Permex Petroleum (OTCQB:OILCD), which is seeking to uplist its shares to Nasdaq and raise around $11M, also operates in the Permian Basin, while Bounty Minerals (BNTY) manages natural gas interests in the Appalachian Basin.

Meanwhile, Elephant Oil (ELEP) has been focusing on oil and gas exploration in Benin and Namibia. The Texas-based company, which first filed in March, said in early November that it is now looking to raise up to $35M.

“They all have differentiated strategies, but I can see the rationale of new IPOs in the space,” said Warren.

For more a more in-depth look at the current state of the energy sector and the dynamics surrounding energy transition, check out Jennifer Warren’s interview with SA editor Michael Hopkins.