BLK BlackRock Inc

Investors flocked to the first initial public offering for a U.S. oil and gas explorer in more than two years, signaling there is still demand for shares of new energy companies despite an extended period of low oil prices.

Extraction Oil & Gas Inc., a Denver-based exploration and production company, sold 33.3 million shares late Tuesday for $19 apiece. The shares ended their first day of trading up 15% at $21.85 on Wednesday, valuing the company at about $2.4 billion. The last time a U.S. oil and gas company went public the price of crude was more than double the $50 barrel level where oil has traded this week.

Extraction operates on about 224,000 acres in Colorado's Wattenberg Field, part of the larger Denver-Julesburg Basin, where drilling activity has picked up slightly since June, according to drilling rig data from Baker Hughes Inc.

The market's warm reception could help pave the way for other oil and gas companies that have been weighing initial public offerings, analysts and bankers say.

Closely held oil-and-gas explorers like Jagged Peak Energy LLC and Brigham Resources LLC have been working with bankers and lawyers to prepare their own IPOs while also feeling out potential buyers for outright sales, The Wall Street Journal has reported.

People familiar with both of those companies' plans say they are more likely to go the IPO route given the strong valuations of energy-exploration stocks have received lately. How Extraction performs over time could help those companies and others decide which route to take.

Energy has been the best performing sector in the S&P 500 this year, up 15.9%. Shares of many smaller exploration and production companies have done much better, with more than 30 of them up more than 30% this year. Shares of eight of those companies have more than doubled.

Still, shares of many other energy producers, particularly those perceived to have burdensome debt loads, continue to suffer from low oil and gas prices that have made drilling in many regions uneconomical. Some analysts have argued that exploration and production stocks broadly are trading at prices that reflect much higher oil prices than the $50 range where crude has traded lately.

Energy investors also face uncertainty over whether members of the Organization of the Petroleum Exporting Countries will agree to limit their production at the group's next meeting in November. If OPEC doesn't reach a pact, or fails to implement it, crude prices could tumble.

Extraction's strong debut comes after a flurry of follow-on stock offerings from oil and gas companies. North American exploration and production companies have sold more than $45 billion of shares since the start of 2015 to bolster balance sheets battered by the sharp decline in oil prices as well as fund acquisitions of properties in the few regions where drilling has remained economical at $50-a-barrel oil.

In many cases, those acquisitions were of closely held companies that big investment firms had launched in recent years.

The last time investors were presented with an IPO from a U.S. oil company, in June 2014, crude was trading at $106 a barrel. Eclipse Resources Corp. raised about $820 million after pricing its shares at $27, the low end of its expected range, and watched its shares fall from there. Eclipse shares ended Wednesday at $3.26.

Extraction's IPO price was above its expected range of $15 to $18 and means hefty gains for its big Wall Street backers, Yorktown Partners LLC, Och-Ziff Capital Management Group LLC, Blackrock Inc. and Neuberger Berman Group LLC.

Write to Ryan Dezember at ryan.dezember@wsj.com

(END) Dow Jones Newswires

October 13, 2016 01:15 ET (05:15 GMT)

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