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Investors tap Canadian market
GARY PARK For Petroleum News
Mid-size Canadian oil and gas companies achieved a single-week bonanza in February, raising almost C$500 million from share sales.
Proving that there is still interest in exploration and production stocks of those with an established pedigree, three companies - Seven Generations (62,000 barrels of oil equivalent per day), Advantage Oil & Gas (about 25,000 boe per day) and Raging River Exploration (14,000 boe per day) - led the way in bolstering their balance sheets and funding capital spending.
“Those are all companies that have a little bit of cachet,” said Mason Granger, energy portfolio manager at Sentry Investments in Toronto. “They’re companies that the equity markets are clearly open for.”
Thomas Matthews, an analyst with AltaCorp Capital, said it is the “higher-margin businesses that have the ability to mitigate losses in this environment” that attract investor attention.
He added the names of even bigger producers, Peyton Exploration & Development (83,000 boe per day) and ARC Resources (120,000 boe per day), to the list of those with good prospects going forward.
Syndicate financing Seven Generations raised C$300 million through a bought deal financing by a syndicate led by Peters & Co. and RBC Capital Markets, which paid C$14 a share, while Raging River sold 11 million shares for C$99.5 million to a syndicate led by FirstEnergy Capital and Advantage raised C$87.5 million through a syndicate of buyers also led by FirstEnergy.
Seven Generations is a producer of liquids-rich gas in fields that straddle the northern British Columbia-Alberta border, while Advantage if primarily a dry gas producer and Raging River has assets in Saskatchewan’s Viking oil play.
The Advantage and Raging River issues gave underwriters the option to take up another 15 percent of shares.
Matthews said that rather than buying into an “asset-specific” play investors were more focused on “higher-margin businesses with lower cost structures.”
Mike Tims, vice chairman of Calgary-based Matco Investments, said that although his firm did not buy into the issues, each of the companies involved is “very well thought of and each one has some uniqueness.”
He said two types of energy investors dominate the market these days - those who believe the low commodity price downturn will turn around by the end of 2016 and those who want to see more evidence of a recovery before taking the plunge.
2015 down from 2014 The latest statistics from Calgary-based Sayer Energy Advisers show that Canadian-based energy share issues raised C$10.5 billion in 2015 compared with C$11.8 billion in 2014, while the value of mergers and acquisitions slumped to C$15 billion from C$50 billion.
Sayer Vice President Tom Pavic said that what skewed last year’s transactions was the volume of equity financings in the early part of 2015, notably big financings by Encana and Cenovus Energy.
The continuing volatility of oil prices means buyers and sellers are unable to agree on what assets are worth, pointing to subdued acquisition and equity markets in the near term.
Offering a more upbeat assessment, Robert Mark, a director of research at Montreal-based MacDougall, MacDougall & MacTier, said investors may be sensing that the worst of the market turmoil has subsided, encouraging them to deploy capital into companies that are best-positioned to benefit from strengthening energy prices.
“Investors are starting to get itchy,” he told the Globe and Mail. “There’s an appetite for taking some calculated risks in the patch and, as one company does a deal ... that gives confidence to others to do the same.”
Laura Lau, senior portfolio manager at Brompton Funds in Toronto, said there is growing confidence that the market has either hit or is close to bottom, allowing investors to “pick horses” they think are going to survive.
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