Bright natural gas flares dot the North Dakota landscape amid an oil boom that is changing the energy dynamics of North America.Nathan VanderKlippe/The Globe and Mail
For a country with such rich oil and gas deposits, Canada has barely seen any energy financings this year. And the outlook isn't very promising.
While it's mainly the mining industry currently under the microscope, plagued by billion dollar writedowns and struggling to raise cash, the oil and gas sector is also going through a rough time, barely able to raise money in the public markets – particularly for junior names.
Energy accounts for about one-fifth of the S&P/TSX Composite Index, but so far this year there have been only two financings for oil and gas explorers and producers that crossed the $50-million threshold – Tourmaline Oil Corp. and Sterling Resources – and just three others above $20-million.
The bright side is that the broader sector hasn't been shunned. Three pipeline companies – TransCanada Corp. and Pempina Pipeline Corp. and Enbridge Energy Income Fund Holdings – have raised just shy of $1-billion in the past three months. But two of them are yield plays, and Tourmaline is a rare exception as a natural gas company on fire. It's been particularly hard for junior energy names to get money, because just like junior miners, they're much riskier investments. When even the big guys are struggling for financing, juniors are left out in the cold.
Speaking with BNN Thursday, John Chambers, managing director and president of Calgary's FirstEnergy Capital, said that by his firm's count, 50 junior management teams have had to be funded by private equity in the past three years. Historically, he added, 80 per cent of them would have simply raised money in the public markets.
This trend parallels what you see in the mining sector, where private equity is looking to play a bigger role with early stage explorers. Suffice it to say, it's not working in favour of the banks. GMP Capital, a traditional junior energy powerhouse, just posted a profit of only $6-million for all of 2012.
But there's at least one positive note: "There are some estimates right now that between 200,000 and 300,000 barrels of oil equivalent a day are on the market," Mr. Chambers said, noting that there could be a lot of assets sales as energy players both big and small scale back to raise cash. So there's at least some business to be had, should the deals go through.
(Tim Kiladze is a Globe and Mail Reporter.)
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Tim Kiladze