Petrus chair bucks trend, woos investors during energy downturn

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Petrus Resources Ltd. could hardly pick a more trying time to go public, but its chairman has already had success wooing investors in a downturn.

Petrus, chaired by industry veteran Don Gray, said on Monday it's launching a reverse takeover of an idled fertilizer company despite being enveloped in the worst energy market in years. The company is also raising $30-million in an equity issue.

Mr. Gray, known for his outspoken style, said opportunities abound for well-financed companies when markets skid, as they did when he founded Peyto Exploration & Development Corp. in the late 1990s. The company is now seen as one of the strongest in a weak sector.

"It was probably one of the worst times for the industry to be able to raise capital. Oil prices and gas prices were very, very depressed," Mr. Gray said in an interview. "I kind of didn't worry about that. I worried about the opportunity. It was quite frankly the best time to be out there growing and investing capital.

"Yes, it's challenging to sometimes get investors to be contrarian like that, but at the end of the day, it's certainly one of the best times to invest."

Petrus, led by Chief Executive Officer Kevin Adair, has oil and gas operations in the Peace River, Foothills and central and southern areas of Alberta after making a number of acquisitions in 2014. Production in the third quarter was about 8,700 barrels of oil equivalent a day.

It had been tipped as a potential initial-public-offering candidate, but the talk died down as the energy-sector rout dragged on.

Now, it plans a transaction that would give it the listing held by PhosCan Chemical Corp., a fertilizer producer that had been seeking buyers. Mr. Gray and other shareholders, including U.S.-based Natural Gas Partners, are not pulling their money out of Petrus, he stressed.

"We're not cashing out by any means. We're doing this in a way that allows us to access more capital, because we do feel like this is the time to be more aggressive, not the time to be less aggressive," Mr. Gray said.

Oil markets are well into their second year of weakness, and the IPO market in energy, which boomed in late 2013 and through 2014, has dried up as investors in energy companies headed for the exits. Hence, Petrus is going against the herd.

Under the deal, PhosCan will spin all its assets, with the exception of $51-million in cash, into a so-called "SpinCo." Its shares will be exchanged for shares in the SpinCo and in what will become New Petrus. Meanwhile, all of Petrus's shares will be exchanged for shares in New Petrus on a four-to-one basis.

Along with the arrangement, Petrus is selling 16.2-million subscription receipts at $1.85 apiece in a bought deal led by FirstEnergy Capital Corp. and GMP Securities. That implies the shares, when issued in exchange after the deal closes, will have a value of $7.40 following the consolidation.

Natural Gas Partners, the U.S.-based private-equity firm that is Petrus's largest shareholder, and Petrus's managers and directors have agreed to subscribe for 8.7 million of the receipts.

Once the deal is done, Petrus will have a market capitalization of about $341-million and net debt of $140-million, it said.

Mr. Gray said the only issue that gives him pause as the deal moves forward is the political climate – the new NDP government in Alberta and Liberals in Ottawa, saying they are "anti-business to some degree."

"There are fewer people who want to put their money to work in Canada. That's kind of what we know in terms of where we like to invest – we know the lay of the land," he said. "It's a headwind that we don't really need but we certainly have."

The Alberta government has taken pains to say that it will collaborate with the industry as it adjusts the royalty regime, and recently won support from oil-sands producers for its new climate-change strategy. Federally, Prime Minister Justin Trudeau's Liberals have spoken of the importance of energy trade, but have created uncertainty with regard to coming changes to pipeline reviews.

Shareholders of Petrus and PhosCan are slated to vote on the arrangement in late January.