Everyone associated with oil and gas is understandably upset about crude’s recent dip below $50 per barrel (bbl) and the accompanying bearish expectations. That makes it hard to think about equity offerings, yet one E&P research team thinks the logjam is about to break and will do so very soon. There could be several consequences.

“Expect equity sooner rather than later,” said Wells Fargo Securities’ senior analysts David Tameron and Gordon Douthat in a late July report. “Companies access the capital markets when they are open. But if and once it opens, it should be a floodgate of issuance.”

This is despite the fact that most E&P equities are now trading at 52-week lows, if not even lower.

Their logic hinges on four concepts. First, with bank borrowing base redeterminations looming, “We would suspect nearly all companies have already had bank conversations and know where they stand … If the redetermination date is, say, in October, and bank regulators are limiting flexibility, that leaves only two months to get something done.”

Second, if an E&P team waits until later in September, it runs the risk that oil prices drift lower or capital markets close by then. Therefore, there is not much time left for secondary stock offerings or other finance alternatives, asset sales, new joint ventures or other options to shore up balance sheets that are under increasing pressure.

Certainly the last two weeks in August are not typically a robust time to get anything done in the capital markets, they said.

Third, second-quarter financial results are already trickling out and all material disclosures will therefore have been made in the next few weeks, which might led to more action in the capital markets.

Finally and historically, oil prices are stronger at this time of year—the summer driving season—than they will be a few weeks, when the fall shoulder season begins. This is when refineries shut down for maintenance and to change their product slate from gasoline to heating oil. “One can try to time the market, but the penalty for being wrong is severe,” they cautioned.

However, if E&P companies manage to raise more equity, there are consequences. That means more capital available for more drilling, which could lead to a bearish base case for oil prices, they acknowledged. “…if names which conventional wisdom says needs to “go away” are able to get something [financial] done, the Street will likely view that as very bearish for the macro.”

Through July 26, an estimated 30 E&P companies have already raised more than $11 billion in equity and more than $19 billion in debt or preferred offerings. A number of second-lien debt deals have come to market but the high-yield or junk bond market is weak. Notably, Swift Energy Co.’s proposed $640 million second-lien debt deal was scuttled recently.

Contact the author, Leslie Haines, at lhaines@hartenergy.com.