Following a rough week on Wall Street, the major equity indices moved up, though hardly to the same degree as Canadian oil and natural gas exploration and production firm Hammerhead Energy (NASDAQ:HHRS). HHRS stock initially soared 70% on its first trading day, likely on the combination of present and future relevancies. Encouragingly, the move also broadly bolsters enthusiasm for initial public offerings (IPOs). It has since pulled back, though it is still up 12% on the day at the time of publication.
On Feb. 23, Hammerhead announced the completion of its business combination with Decarbonization Plus Acquisition Corporation IV, a special purpose acquisition company (SPAC). One day later, the company filed and received a receipt from the Alberta Securities Commission for its final Canadian non-offering prospectus. Previously, the oil and gas specialist carried the name Hammerhead Resources. HHRS stock dual lists on the Nasdaq and the Toronto Stock Exchange (TSX).
“We are excited to enter the next chapter in the progression of our business. Moving forward, we look to be a clean provider of energy that is sustainably backed by some of the best-returning and long-life assets in North America,” said Scott Sobie, CEO of Hammerhead. “The company now is poised with a structure and a team that we believe will facilitate both shareholder returns and a competitive growth model.”
On the other end, Robert Tichio, former CEO and director of decarbonization Plus added, “[w]e are pleased to see the completion of this business combination and to support Scott and the Hammerhead team as they continue to execute on their mission of developing their high-quality asset base and delivering substantial production growth and free cash flow, while maintaining focus on critical emissions management and net zero goals.”
HHRS Stock Jumps on ‘Odd’ Relevancy
Fundamentally, HHRS stock benefits from both current and projected needs. In 2022, an unfortunate storm of geopolitical flashpoints and skyrocketing inflation undergirded explosive demand for hydrocarbon energy resources. As well, China’s economic reopening could continue to buttress heightened energy prices. Plus, brewing U.S.-China tensions present concerns about global supply chains that may impact the energy market.
Moving well forward, HHRS stock should theoretically benefit from the broader push to clean and renewable energy infrastructures. Although a heated and often-politicized topic, Cornell University notes that “[m]ore than 99.9% of peer-reviewed scientific papers agree that climate change is mainly caused by humans, according to a new survey of 88,125 climate-related studies.”
Therefore, HHRS stock stands on viable ground. However, investors may notice the oddity of an oil and gas firm billing itself as “clean” energy.
Indeed, the Decarbonization Plus SPAC noted on its prospectus with the U.S. Securities and Exchange Commission that it seeks merger opportunities with one of many sectors “that may advance the objectives of global decarbonization.”
However, on Hammerhead’s website, management lays out two core strategies. First, it seeks to make the process of oil and gas exploration more efficient with reduced impact on the environment. Notably, this includes efforts to respect and partner with Indigenous communities. Second, it intends to direct free cash flow from its hydrocarbon business to support clean energy projects.
Why It Matters
While IPOs were all the rage in the first two years of the pandemic, 2022 reported a dramatic decline in new listings. Per FactSet, “1073 companies IPO’d in 2021, raising $317 billion; in the first half of 2022, the total was just 92 companies, raising just under $9 billion.” Therefore, the strong debut of HHRS stock may indicate a resurgence of sentiment for new listings.
Also, investors have had time to absorb the risks associated with SPACs. For instance, Harvard Business Review stated its study “discovered that many of the SPACs had raised relatively small amounts of capital and offered higher-than-average warrants as an incentive to entice investors—both indications of lower-quality sponsor teams.”
Thus, the lift in HHRS stock implies acceptance of this and other risk factors. In turn, this dynamic may encourage sentiment in other risk-on asset categories.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
