The oil patch has regained its hot hand raising money this year, supported by healthy commodity prices and investor appetite for merger and acquisition deals.
Oil and gas companies sold more equity in the second quarter of 2014 than in any other quarter since well before the financial crisis, according to research from TD Securities Inc.
The tally was around $3.7-billion, more than three times the total in the same period in 2013, when all seemed bleak as some investment dealers shed staff in Calgary and a few even closed their doors.
The last time equity issues approached the total was the second quarter of 2007, the industry's last boom, when the sector raised slightly less than $3.4-billion. The first quarter of this year wasn't too shabby either at around $3-billion.
Of course, Encana Corp.'s $1.7-billion initial public offering of PrairieSky Royalty Ltd., completed in June, pushed the numbers over the top. The low-risk model of a fee- and royalty-based acreage lessor proved wildly popular, making PrairieSky the country's richest IPO in 14 years.
Still, there were 22 other equity financings during the quarter, with some of the most valuable in the high-yield category. There, a handful of growth-and-dividend-focused producers, the "divcos", have found it a cinch to raise money to buy assets. There were 13 deals in the junior and intermediate producer category too.
Nearly two-thirds of the way through the third quarter, activity has cooled off, though not to the extent of last year, when the oil patch raised less than $900-million from July through September. There are likely other deals in the wings.
Last week, a $125-million Whitecap Resources Inc. stock offering flew off the shelves. The money was earmarked to partially fund a $267-million acquisition of Alberta light oil assets. The financing was a repeat of a similar, albeit larger, deal for Whitecap in March.
"Typically, summer is quiet but when September rolls around, it's go time," said Martin Pelletier, portfolio manager at TriVest Wealth Counsel and a former energy analyst.
"It's kind of the lull before the storm. It will be interesting to see what it looks like this fall, and I think if the broader market continues its current trajectory, the people will be risk-on again with these energy stocks and the financing," Mr. Pelletier said.
The wild cards, of course, are oil and gas prices, which have weakened this summer, clouding the outlook for the sector. Between mid-June and mid-August the S&P/TSX capped energy index lost nearly 9 per cent of its value.
However, in less than two weeks, the index has clawed back about 5 per cent as the broader global markets have gone from strength to strength.
There could well be more merger and acquisition activity on tap. TD's numbers show deals have topped $15-billion year-to-date, surpassing the value of transactions for all of 2013. If activity continues apace, the value this year could approach the 10-year average of $25.5-billion, the bank estimated. Equity issues would go hand-in-hand.
Meanwhile, at least three companies, Seven Generations Energy Ltd., Teine Energy Ltd., and Petrus Resources Ltd., have been tipped as possible IPO candidates before the end of this year.
"I think the outlook for the balance of the year is still fairly strong," said Chris Cox, analyst at Raymond James. "Much of this will continue to be driven by potential IPOs later this year but certainly the access to capital for [exploration and production] companies is markedly improved, which could lead some management teams to look to the equity markets to further accelerate growth in key projects."
