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Wheeling and dealing in Canada Privately held Montney player moves closer to IPO; Encana startles investment community by unloading remaining stake in Prairie Sky Gary Park For Petroleum News
Seven Generations Energy (better known as 7G) is close to tying its highly rated stake in the Alberta Montney resource play to a C$1 billion initial public share offering, or setting the stage for an outright sale.
At the same time, former natural gas giant Encana may be grooming itself for a major acquisition to make significant gains in its production of oil and natural gas liquids.
7G shareholders approved a two-for-one split of its privately held shares at a meeting Sept. 8, a move seen as making the share prices more attractive to a wider range of investors, but Chairman Kent Jespersen said the board has yet to agree on the terms of an issue.
“What we’re doing is all the preparation that’s necessary to either sell the company or IPO the company,” he said.
To help with the process, 7G has retained Peters & Co. and RBC Dominion Securities to lead an offering.
Jespersen said there is a “psychological aspect” to the final decision, especially to discourage retail investors from shying away if the price is “too high,” especially at a time when analysts have voiced concern about the softness of commodity prices.
The two investment banks have already conducted other financings for 7G, including a C$625 million secondary issue of shares in March.
Second largest this year If the IPO occurs, it would be the energy industry’s second largest of 2014, tracking the C$1.67 billion raised by Encana spinoff PrairieSky Royalty, but how the offering would break down between treasury and a secondary sale from major investors is not clear.
7G’s leading investors are the Canada Pension Plan Investment Board, ARC Financial, KERN Partners, Natural Gas Partners and ZBI Ventures.
The company has notched successes around its horizontal drilling techniques at its Kakwa River project, about 60 miles south of Grande Prairie, in northwestern Alberta, where interest is high in the region`s impressive deliveries of liquids-rich gas and light crude.
For the second quarter, 7G reported average production of 24,000 barrels of oil equivalent per day (14,005 bpd of oil and gas liquids and 60 million cubic feet of gas) compared with 6,182 boe per day a year earlier (almost 3,000 bpd of oil and liquids and 19 million cubic feet of gas).
Funds from operations jumped 615 percent to almost C$66 million, yielding a net income of C$44 million, compared with a loss of C$8.4 million a year earlier.
Over the 12 months, the company’s liquids ratio has climbed to 58 percent from 48 percent.
Land holdings up Its land holdings have increased to a net 350,244 acres (94 percent of which is in the Montney), having grown 54 percent in the past year, with net undeveloped land at 279,537 acres, up 50 percent.
Gross proved reserves posted a 206 percent gain to 328 million boe, while proved plus probable reserves grew 129 percent to 649 million boe, based on an independent valuation by McDaniel & Associates Consultants.
The company reported that it released rigs on 15 wells in the second quarter with an average horizontal lateral length of about 8,850 feet, completing nine wells and bringing seven on production. The rig count was boosted to nine from seven at the start of 2014.
7G also reported that privately owned Citadel Drilling started drilling this month on a Kakwa well targeting the Montney formation, which 7G hopes will allow it to more effectively develop its tight liquids gas resource.
It said the Kakwa project is dominated by the development of the tight, liquids rich Montney resource at depths of 9,200 feet to 13,100 feet.
Citadel Chief Executive Officer Dan Hoffarth said 7G was a “perfect fit” for his company’s new technically advanced rigs because of the challenges posed by 7G’s Montney holdings.
Barry Hucik, 7G’s vice president of drilling, said the new rig “will be a significant step along the path to our objective of reducing costs while extending horizontal reach, enabling us to develop more resource with less surface land disturbance.” He said two more rigs should be added this fall and into 2015.
Encana sheds PrairieSky Another test of the market mood was announced Sept. 8 when Encana announced a surprise move by selling to a group of underwriters led by TD Securities its remaining 54 percent stake in PrairieSky for C$2.6 billion, or C$36.50 a share, up 30 percent from the IPO in June.
The surprise stems from Encana’s earlier intention to retain the controlling interest.
After surging on the first day of trading, PrairieSky shares continued climbing to peak at C$42.39, with investors attracted by PrairieSky’s position as the largest oil and gas royalty company and its prospect for growth, given the size of its 5.2 million-acre land base.
The attention is now turning to Encana’s rapidly building war chest, which some analysts think could be used to expand the company’s recent acquired Eagle Ford position in south Texas, or the Duvernay play in northern Alberta.
The PrairieSky offering and the recent sale of its Bighorn assets in Alberta and the remainder of its East Texas holdings will give Encana US$7 billion in cash.
Phil Skolnick, an analyst at Canaccord Genuity, ruled out the possibility of using the money for a special dividend, betting instead that a “large acquisition is on the radar,” with the “sudden nature of the secondary offering” indicating Encana is “ready to pull the trigger.”
He suggested that could involve Athabasca Oil Corp., which has been looking for a partner in the liquids-rich Duvernay play, but Encana is playing coy on its plans for the PrairieSky proceeds.
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