Seven Generations ducks downturn

Fast-growing Seven Generations Energy, which specializes in fracking for shale formations in Western Canada, made its public debut with a splash, despite some backwash from a low-ebb market.

The company raised a combined C$932 million in Canada’s second-largest initial public offering of the year behind Encana’s initial sale of shares in PrairieSky Royalty for C$1.46 billion in May, the largest Canadian IPO since 2000.

The four IPOs this year in the Canadian oil patch have raised C$2.24 billion, more than quadrupling the C$482 million generated by two deals in 2013.

Seven Generations priced 45 million shares at C$18 (the regulatory filing set the price range at C$17 to C$21) and they were snapped up for C$810 million.

The offering was oversubscribed by 6.75 million shares, allowing the underwriters to exercise their option, adding C$122 million to the deal.

Slump in crude prices

But two major shareholders - private equity firms ARC Financial and KERN Partners - scrapped plans for second offerings to coincide with the IPO, deciding instead to retain their positions at a time when the market for energy shares is under heavy pressure.

The appeal of Seven Generations stems from its performance in a challenging and costly sector by using horizontal drilling and multi-stage fracturing on 330,000 net acres in the Montney. It holds an estimated 649 million barrels of oil equivalent in proved and probable reserves and has about 3,000 drilling locations.

Brook Papau, an analyst at ITG Investment Research, said he had not heard any doubts about the “deliverability of the assets.”

Seven Generations said it plans to spend C$625 million on its operations in the second half of 2014 and C$1.6 billion in 2015.

- Gary Park