North American exploration and production companies tapped equity markets deeply in this year’s first quarter to address financial problems created by the plunge in crude oil prices.
Moody’s Investors Service expects them to continue doing so if markets remain stable.
E&P companies tracked by the credit rating firm issued about $11.7 billion in equity in the first quarter, more than 16 times the amount of the comparable period of 2014.
Moody’s said it expects the companies “will continue to issue equity in 2015 to help fund negative free cash flow and improve liquidity while also reducing debt.”
The firm said heavy debt issuance has occurred while stock prices are low, reflecting conservatism that also led companies to cut capital spending quickly when oil prices dropped. Companies are concerned about how long oil prices will remain low and about the possibility of further declines, Moody’s pointed out.
“If oil prices do rise in 2015, the cost of issuing equity at low share prices early in the year will still be relatively small insurance compared to any gains from higher commodity prices,” the firm said.