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Crude oil’s plunge below $50 a barrel is killing the oil and gas IPO market

Energy IPOs picked back up late last year, as major oil exporters agreed to cut production, buoying prices firmly above $50 a barrel. That bolstered U.S. drillers, who had already driven down the cost of producing oil from U.S. shale fields using a process called hydraulic fracturing to free oil and gas from rock formations.

But with oil prices back in the mid-$40 range, energy is now the worst-performing sector of the IPO market this year, said Kathleen Smith, manager of IPO-focused exchange traded funds at Renaissance Capital.

“Unless energy prices turn upward, we don’t expect to see many energy IPOs in” the second half of 2017, she told CNBC in an email.

CNBC screened 12 energy companies that went public in the last three quarters and found just 2 are trading above their IPO prices.

Performance of energy stocks that recently went public, source: Factset

To be sure, some of those companies are outperforming the broader S&P energy sector, which is down 12.5 percent this year, but that’s likely little comfort.

Energy firms are not yet taking their offerings off the table entirely, but they are waiting for the window to reopen, according to Joe Dunleavy, a partner at PwC, which helps companies launch IPOs and manage public filings.

He, too, thinks the signal is the psychologically important $50 a barrel level.

The companies PwC advises are “still looking for a rebound in prices for the latter half of the year. But right now, the prices and valuations they’re getting on deals are not where they want to be, so right now there’s a cooling off of companies that were planning to go public,” Dunleavy said.

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