Investors Pulling Money from Shale Put Brakes on Wall Street Funded Boom

Falling oil prices are testing investors’ commitment to the Wall Street-funded shale boom.Energy stocks led the plunge earlier this month in U.S. equities and the cost of borrowing rose. The Energy Select Sector Index is down 14 percent since the end of August, compared with 3.8 percent for the Standard & Poor’s 500 Index. The yield for 190 bonds issued by U.S. shale companies increased by an average of 1.16 percentage points.Investors’ sentiment toward the oil and gas industry has “certainly changed in the last 30 days,” said Ron Ormand, managing director of investment banking for New York-based MLV & Co. with more than 30 years of experience in energy. “I don’t think the boom is over but I do think we’re in a period now where people are going to start evaluating their budgets.”What distinguishes this U.S. energy boom from the way the industry operated in the past is the involvement of outside investors. In 1994, drillers funded 42 percent of their own capital spending, according to an Independent Petroleum Association of America member survey. Today, shale companies are outspending their cash flow by 50 percent thanks to borrowed money, according to the IPAA. They’re selling more than twice as much equity to the public as they did 10 years ago, according to Tudor Pickering Holt & Co., a Houston-based investment bank. Photographer: Eddie Seal/BloombergA floor hand signals to the driller to pull the pipe from the mouse hole on a drilling… Read More“After the tech bubble and then the real estate bubble, Wall Street had to put its money somewhere, and it looks like they put a lot of it into domestic onshore oil and gas production,” said Michael Webber, the deputy director of the Energy Institute at the University of Texas at Austin, who advises private investors.

via Shale Boom’s Allure to Wall Street Tested by Bear Market – Bloomberg.

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