A year ago, amid $11 oil prices, Wall Street wasn't too receptive to public equity, convert or high-yield debt deals for energy issuers. But since then, oil prices have roared back. So, have the doors to the public capital markets now reopened for the sector? Well, not exactly. "There's still a suspicion in the market that maybe the recent run-up in commodity prices isn't sustainable," says Grant A. Porter, managing director for Lehman Brothers' natural resources group. "Another negative for producers' stock prices has been the unusually warm weather across the country recently." Nonetheless, Porter sees a rebound in access to the equity market by E&P companies during first-half 2000-based upon a cyclical industry upturn and a swing in investor sentiment away from technology issues into more cheaply priced energy stocks. "Naturally, a lot of this optimism depends on the weather and global energy demand." Porter is also sanguine about the convert market for energy issuers. "A lot of convert funds have seen their converts exchange out because of the rise in the overall equity market, therefore there's a lot of new-issue demand in this area." As for the high-yield market, "it has been particularly pricey for the energy sector." Recently, the energy part of Lehman's high-yield index carried a weighted average coupon of 13.24%-a 706-basis-point spread above 10-year Treasuries. Jay M. Courage, New York-based senior managing director and co-head of Jefferies & Co.'s energy group, contended a year ago that small-cap energy companies faced two options: merge with larger-cap names or pursue creative financings. "That turned out to be a fair characterization." Danny O. Conwill IV, New Orleans-based executive vice president and co-head of Jefferies' energy group, points out that in a tough 1999 financing environment, Jefferies sold $63.5 million of senior secured notes into the high-yield market for Abraxas Petroleum Corp., then sold $135 million of that same type security for Contour Energy. "These financings provided liquidity those companies couldn't get otherwise." More recently, Jefferies assisted Abraxas with a debt-for-debt-plus-equity exchange offer, which reduced Abraxas' debt outstanding by more than $80 million. Courage and Conwill believe that, with the recent rebound in commodity prices, the capital markets will be more open in 2000 than last year, starting with equity. Says Robert D. Africk, managing director and oil and gas group head for Fieldstone Inc., a New York-based private energy capital intermediary, "Commodity-price uncertainty proved an impediment to getting private equity deals completed in early 1999. And even now, after commodity prices have advanced dramatically, investors still have trouble believing these higher prices will remain in the long term. As such, they've become more selective." Fieldstone is moving ahead with two private energy equity transactions for first-quarter 2000. "We're looking to raise $125 million for an oilfield service company active in the marine construction sector," says Africk. "This deal is getting an outstanding reception because the service sector is perceived by investors as being where the E&P sector was six months ago-just starting to come back." Fieldstone is also advising the service company as it attempts to acquire complementary businesses. "In addition, we're trying to raise $15 million for a South Texas-focused, exploration-data-acquisition company that wants to acquire prospective acreage and become more of an E&P company," says Africk. Arthur R. (Buzz) Gralla, Houston-based managing director for Bank One Corp.'s oil and gas producer finance group, saw the bank's small-cap lending portfolio perform well in 1999, despite early commodity-price turmoil. "That's because there were very few lenders competing for this segment and because we effectively used hedging in second-half 1999." Scanning his bank group's portfolio of 180-plus small-cap borrowers, Gralla says more than 40% of those clients now use hedging. "It has ensured cash flows, allowed higher loan amounts, and made producers feel more comfortable about doing acquisitions, as well as drilling." What about problem energy loans? "We sat down with our group's borrowers to resolve any over-advance situations created by lower commodity prices,"says Gralla. "In all, we had only 12 to 15 potential problem situations-only one of which we weren't able to resolve."