Encana Corp. has sold the rest of its stake in PrairieSky Royalty Ltd., adding a hefty equity offering to an already hot deal market.
Encana will raise $2.6-billion when the deal closes around Sept. 26, the natural gas company said in a statement Monday. Encana offloaded its stake through a bought deal to a group of underwriters. The 70.2 million shares have been priced at $36.50 each, roughly 30 per cent more than what investors paid in the initial public offering in June.
Encana raised $1.67-billion in the IPO, nearly twice what it originally expected. The shares sold at $28 each and immediately spiked. The deal was the largest initial public offering in Canada in 14 years.
Energy companies sold roughly $3.7-billion worth of equity in the second quarter of 2014, according to TD Securities Inc. That is more than three times what companies raised in the same quarter in 2013.
PrairieSky's bought deal price is 4.2 per cent lower than its closing price Monday.
David Meats, an analyst with Morningstar Inc., said Encana's decision to sell the stake so soon after the IPO is a surprise, but the market has been very receptive to equity financing.
"We valued the residual stake based on the IPO price. We didn't want to get carried away with what the market was doing. It sounds like management was thinking along similar lines, and seeing an attractive valuation relative to the IPO," Mr. Meats said. "With PrairieSky, I'd rather be on the selling side of this than the buying side."
PraireSky controls roughly 5.2 million acres of so-called royalty-free property. The company leases the land to other operators in exchange for royalties.
With files from Jeffrey Jones