Record discounts for Albert crude in recent weeks are now spurring a strong new push by the oil patch to make the case that more needs to be done, and fast.Denny Thurston/Getty Images/iStockphoto
Private equity is poised to fill some of the funding gap that's hit the oil patch this year as equity financing, the traditional fuel for drilling and asset purchases, sputters well below average levels.
Such investments and acquisitions are seen as selective rather than a wholesale rescue for the sector, but private investors, including foreign ones, are expected to play a growing role, law firm Torys LLP said in its Capital Markets Mid-Year Report.
In the first quarter, equity capital raised by oil and gas issues listed on the TSX and TSX Venture exchange tumbled to $568-million, down from $2.3-billion in the same period of 2012 and $3-billion in 2011, Torys said, citing TSX market intelligence group data.
A combination of weak natural gas prices, sporadically deep discounts on Canadian crude versus U.S. and international oil and a general market malaise are seen as reasons for the ebb in financing, which has pressured the energy banking sector. It wasn't so long ago that private equity players had pulled back from Canadian energy. In 2010, their investments in the sector totalled $2.6-billion, falling to $1.6-billion in 2012.
So far this year, the tally is about $600-million, and a lot of that business has been going-private deals, a trend the report noted has picked up in recently with three such transactions.
The latest was Wenzel Downhole Tools Ltd, which entered into an deal to be taken out by New York-based Basin Holdings for $99-million, including debt.
"As we look ahead to the remainder of 2013, there is no sign that there will be a rapid resurgence of the public equity markets or commodity prices," Torys lawyers wrote. "However, as evidenced by the announcements in recent weeks, it does appear that private equity, including some funding from foreign investors, may be emerging to fill those cracks for certain players in the oil and gas sector."
It also noted keen investor interest in private equity vehicles. Last year, ARC Financial Corp. closed its ARC Energy Fund 7 with $1-billion raised, and Camcor Partners recently closed its Camcor Energy Fund VII at its $350-million cap.
(Jeffrey Jones is a Globe and Mail Business Reporter.)
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