A no-show at an energy conference this week could spell a rare and positive development in an industry that’s been starved of capital since well before the coronavirus pandemic hit.
On Monday, a private outfit called Topaz Energy Corp. had been scheduled to give a presentation to a virtual edition of the annual Peters & Co. conference. The Street had been waiting with interest, given that an initial public offering for the hybrid energy royalty and midstream company has been under consideration.
But Topaz, majority owned by Calgary-based Tourmaline Oil Corp., cancelled its spiel, leading analysts and investors to wager it had entered the required quiet period before filing a prospectus for an offering that could raise hundreds of millions of dollars.
If Tourmaline parts with some of its interest alongside an IPO, or sells down its stake later, the proceeds could help chief executive officer Mike Rose build up his own war chest for natural gas acquisitions in Alberta and British Columbia, reducing the need to take on debt for what he’s described as “a generational opportunity.”
More broadly, Canada’s energy industry has been starved of new public equity for years – the last IPO of note in the sector was for AltaGas Canada (now TriSummit Utilities) in the fall of 2018 – so a successful deal would be a tonic for the oil patch and the banks that fund it at a time when so much of the industry is down on its luck.
Officials with Calgary-based Tourmaline did not respond to a request for comment.
Recall it was just six months ago that Alberta was wracked by fear that a large portion of its biggest industry was headed for bankruptcy proceedings as cash dried up and debt burdens loomed large owing to the collapse in demand for oil and gas. It looked darkest in April, when the price of U.S. benchmark crude oil sank below zero.
The market has staged some recovery as economies have gingerly opened back up after the initial coronavirus-induced lockdowns, but it has been a slog. Oil prices have clung to a range around US$40 a barrel, which leaves many companies operating with little money to fund drilling. As a result, the Toronto Stock Exchange’s energy group has also been largely range-bound since mid-June.
Natural gas markets, though, are surprisingly strong. Tourmaline has been by far the most active gas driller in the industry, focusing on areas such as the B.C. Montney and Alberta Deep Basin, and has garnered a reputation as one of the most savvy acquisitors. Companies with high debt loads will be pushed to sell assets, and Tourmaline could take advantage of such strains at rival companies by snapping up properties in its main areas, Stifel FirstEnergy analyst Robert Fitzmartyn said.
In a recent research report, Mr. Fitzmartyn tallied the opportunity that Topaz presents. The company, which Tourmaline spun off last year, has two main businesses – it collects royalties on Tourmaline lands and has stakes in infrastructure such as gas plants. It recently increased its holdings by paying $100-million for a minority stake in a gas plant owned by Advantage Oil & Gas.
Tourmaline has a 64-per-cent interest in the growing business, and after a $145-million private placement in June, the stake was valued at about $650-million.
Based on comparable multiples for the country’s other energy royalty companies, Mr. Fitzmartyn says Topaz shares could trade at about $12.75, suggesting a market capitalization of nearly $1.2-billion.
What’s still not known is how much stock might hit the market, and whether Tourmaline might look to raise some cash in the process. There’s a large portion of a hard-hit industry on pins and needles waiting to see what the appetite will be, and betting whether it signals the start of a turnaround.
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