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Gold in them thar sands — for some
Gary Park For Petroleum News
It was a rip-roaring initial public offering. Now the sounds you might hear are of shares being ripped up and investors doing the roaring.
Athabasca Oil Sands Corp., which is years and billions of dollars away from launching a commercial operation in northern Alberta, had a fleeting few days of glory, raising C$1.35 billion — C$600 million more than expected — in an initial public offering at C$18 a share.
Not bad for a company created only four years ago and whose shares carried a book value of just C$383 million, or C$1.22 a share, less than seven months ago.
The world changed for the startup company when PetroChina arrived on the scene, unloading cash of C$1.9 billion for 60 percent stakes in each of AOSC’s two primary oil sands leases and placing a put-call option on the remaining 40 percent for C$2 billion.
Special dividend The bulk of PetroChina’s cash was turned into a special dividend payment to investors in the privately held company at C$4.25 a share, for a total of C$1.33 billion — a fat payout that was aided and abetted by Canadian law that levied tax on only 50 percent of the capital gain realized on the sale of the leases.
For those who participated in AOSC’s original transaction in August 2006 to acquire 96,000 acres of oil sands leases, the dividend was a bonanza that extended through two subsequent private placements — one for C$1 million through the sale of shares at 10 cents each and the other for 82.1 million units at C$1 per unit, followed by the sale of additional equity in 2006 and 2007.
So the original investors, who owned 80 percent of AOSC when it made its debut on the public markets, had seen their bets pay off big time.
Those on the inside said the IPO was reportedly fueled by three Asian-based national oil companies, plus European investors, driving actual demand for the shares to about C$2 billion.
AOSC also went to some lengths to tackle the environmental opposition to the oil sands, by explaining that its thermal recovery methods will do less harm than the traditional open-pit mining operations.
“It was really the endorsement from PetroChina (that sold the IPO),” said Laura Lau, an energy and resources fund manager at Sentry Select Capital. “That was the bottom line.”
Strong interest expected When AOSC began trading on April 8 there were expectations of strong interest from index funds and further Chinese money, along with a belief that some of the private investors would grab the chance to cash out some or all of their investment, creating a push-pull on the stock.
Whatever the factors, AOSC shares briefly moved above the C$18 offering price, then went into a gradual slide, reflected by GMP Securities, one of the lead underwriters, which bought 17 million shares and sold 8.9 million on opening day.
AOSC shares slumped 20 percent in their first five days of trading, and dealers outside the underwriting syndicate have suggested the disappointing results so far have reflected a bailout by hedge fund investors and the absence of buy-and-hold insurance, pension and mutual fund investors.
Alan Tambosso, president of Calgary-based M&A specialist Sayer Energy Advisors, attributed part of the slide to insider selling after the IPO, including shareholders with investment banks who bought in for less than C$2 a share and put downward pressure on the stock by cashing in.
“If you bought into Athabasca for C$1 and lived with that holding through the past two harrowing years you really don’t care if you come out at C$18 or C$16, you just want to cash out,” he told the Globe and Mail.
Will others be affected? The question now is whether the AOSC experience will affect plans by other early stage oil sands companies to go public, notably MEG Energy (which has China National Offshore Oil Corp. as a 16.69 percent partner and private equity firm Warburg Pincus as a major shareholder) and Laricina Energy.
Foreign takeovers of both companies are seen as strong possibilities, although both companies play down that talk, with MEG noting it raised C$1 billion in private share sales over the past year and has raised its credit lines by C$300 million to C$1 billion, limiting its need to tap private or public markets.
Chris Felton, an analyst with the Macquarie Group, said in a report that the oil sands are viewed by foreign companies as a “politically stable, attractive option to secure oil resources,” and forecast that takeover activity will gather pace because “oil sands leases are essentially all locked up (and) new entrants in the play will have to pay for access.”
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