Elkwater Resources sells $100-million of equity as market skids

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Several investment banks have picked one of the worst months for energy stocks since the financial crisis to launch a $100-million bought deal equity issue for a junior oil company.

Elkwater Resources Ltd. said on Wednesday it is selling the stock to finance a pair of light and medium-gravity oil acquisitions.

It is buying a private oil company called Exoro Energy Inc. and acquiring other assets in the Killam area of Alberta. It is also changing its name to Striker Exploration Corp.

The financing is being led by Desjardins Capital Markets, TD Securities Inc. and FirstEnergy Capital Corp. Elkwater is pushing the equity out the door at a sizable discount to the closing price of the shares on the TSX Venture Exchange on Tuesday and with a lengthy escrow period.

The betting is that the market, and its view of Elkwater, will improve once the current sell-off is over.

The company is selling 267 million subscription receipts at 37.5 cents apiece. Each one gives the holder one share and one half of a warrant exchangeable for a common share four months after the financing closes or upon final issuance of regulatory approval under the passport system for a final prospectus, whichever is sooner.

Each warrant will allow the holder to buy an additional share for 50 cents for up to 18 months following the closing of the issue.

The stock sank 25 per cent on Wednesday to 41 cents. As recently as August, Elkwater shares sold for $1.18.

Skidding oil prices and fears about falling demand in Europe and Asia have hit Canadian energy stocks hard. The S&P/TSX capped energy index has lost 14 per cent of its value since the beginning of the month, and is nearing a 17-month low.

Elkwater said the Exoro deal, worth $60.5-million plus assumption of $22.8-million in debt, will be completed through a plan of arrangement. It will add 1,950 barrels of oil equivalent a day of production, 60 per cent of which is oil and gas liquids. The other assets being acquired will add 525 barrels per day, with the same proportion of oil and gas liquids, at a cost of about $30-million.