North American oil and natural gas public offerings got off to a slow start early this year, but an increase in second quarter activity could signal more activity through the rest of 2015, Houston-based Ernst & Young LLP said Thursday.

Four North American oil and gas initial public offerings (IPO) generated $2.36 billion in 2Q2015, a 100% increase in volume and an 88% increase in value from the first quarter, researchers said in the report, EY Global IPO Trends: 2015 Q2.

“During the first quarter of 2015, sponsors appeared to be in a wait-and-see mode with respect to some of the commodity price volatility, as well as the availability and attractiveness of the public markets,” said the firm’s U.S. MLP leader Greg Matlock. “Though some of that sentiment still exists, IPO performance has been positive in the second quarter, as has the outlook for future activity.”

U.S. exchanges produced the two top global deals in the first half of the year, and both were by energy master limited partnerships (MLP). Tallgrass Energy GP LP raised $1.4 billion in May and Columbia Pipeline Partners LP (CPG) raised $1.2 billion in February. Tallgrass and its units provide natural gas transportation and storage services in the Rockies and Midwest, as well as gas processing in the Denver-Julesburg Basin, Niobrara formation and Mississippian Lime (see Daily GPI, March 5). CPG, spun off from NiSource Inc., owns most of NiSource’s gas midstream/pipeline assets and gas storage capacity (see Daily GPI, May 14).

“Notably, three of the four North American oil and gas IPOs issued during the second quarter were MLPs,” researchers said. “This was only slightly lower than the four MLPs issued during 2Q2014. Compared with the first quarter of 2015, this denoted a 200% increase in the number of MLPs. Likewise, the proceeds generated by MLPs rose from $1,238 billion in 1Q2015 to $2,323 billion in 2Q2015.”

The analysis used data sourced from Dealogic as of June 16. The year-to-date data is based on priced IPOs and expected IPOs.

The second quarter was stronger sequentially, but the number of transactions and proceeds generated were down sharply year/year. During the first six months, six North American oil and gas IPOs generated an estimated total of $3.566 billion in proceeds, versus 14 deals in the year-ago period that raised a cumulative $8.41 billion.

“Although overall year-over-year cumulative IPO activity is lower than 2014, more oil and gas IPOs are anticipated in the second half of the year,” Matlock said. “The MLP structure, which already saw a rebound in 2Q2015, will also continue to play a unique and important role in today’s volatile energy market.” MLPs “provide a low-cost, alternative form of capital for expansion and growth.”

However, recently proposed regulations by the Internal Revenue Service (IRS) require investors to “stay apprised of potential changes in the qualification for the structure,” he said.

In May, the IRS proposed rules on what it considers “qualifying income” for MLP purposes (see Shale Daily, May 7). In June, Sens. Chris Coons (D-DE) and Jerry Moran (R-KS), along with House Reps. Ted Poe (R-TX) and Mike Thompson (D-CA), reintroduced the Master Limited Partnerships Parity Act to make the MLP structure available to some renewable energy projects.

“The IRS regulations, if enacted in the current form, could significantly impact companies with nontraditional types of income that may have wanted to access the MLP market,” Matlock said. “On the other hand, for oilfield services activities, the proposed regulations could offer a potential road map for qualification.

“Meanwhile, if the Master Limited Partnerships Parity Act is enacted, renewable energy sponsor companies could leverage the MLP structure to access higher valuations and a potentially lower cost of capital. On all of these proposed regulations, further monitoring is necessary to truly determine their impact.”