If there were anytime for an oil company to launch an equity offering worth about 75 per cent of its existing market capitalization, it would be now. The Toronto Stock Exchange is soaring and investors are focused on resources, marking the perfect opportunity for DeeThree Exploration Ltd. to tap the market for $115-million of new equity.
But the deal wasn't simply a means for picking up new exploration funds. DeeThree is immediately putting the money to work by purchasing producing oil and natural gas assets from Fairborne Energy Ltd for $125-million. The assets, located in Brazeau, West Pembina and the Peace River Arch area of northern Alberta, currently produce about 1,800 barrels a day.
Through the deal, DeeThree is transformed from an exploration company into one that is already producing. The revenue generated from this production will help to fund more drilling.
To get the deal done, the offering came at a 17 per cent discount, a deep cut relative to where other transactions have been selling. However, the stock did pop just before the announcement was made so the negotiated discount was probably in the range of about 13 per cent.
A similar transaction came to market in January when Canada Lithium Ltd. raised $110-million, worth about half of its market cap at the time. That deal came also came at a 17 per cent discount, and was particularly tricky to price because the stock had popped in the few weeks prior to the deal. Like DeeThree, the company had a specific use of proceeds and put the money into a developing a new Quebec project.
DeeThree's deal is comprised of $100-million worth of subscription receipts and $15-million of flow-through shares. Macquarie and Casimir Capital co-led the equity offering and both shops advised on the asset purchase.