Seven Generations Energy Ltd. has pushed ahead with a $932-million initial public offering, though slumping energy markets forced the company to price the shares well below its original target.
Meanwhile, two major shareholders, private equity firms ARC Financial Corp. and KERN Partners Ltd., cancelled plans for secondary offerings to coincide with the IPO, sources close to the deal said, deciding instead to hold onto their positions, with the overall market for energy shares under heavy pressure.
Seven Generations, known for liquids-rich natural gas operations in the prolific Alberta Montney region, priced its 45 million shares at $18 apiece, for proceeds of $810-million. The offering was oversubscribed, and the underwriters exercised an overallotment option of an additional 15 per cent, adding $122-million to the much-anticipated deal, according to the sources.
The results show that investors remain keen on Seven Generations' prospects, even though conditions in the oil patch have worsened in the two months since the company cranked up its financial machinery to go public. The rapid fall in oil prices led to an across-the-board selloff in oil stocks, dragging the Toronto Stock Exchange's energy index down 20 per cent. That raised questions about the market's appetite for new shares.
Still, investors have been impressed with Seven Generations and its technical abilities in a tricky and expensive sector of the industry. It has made a name for itself tapping liquids-rich natural gas using horizontal drilling and hydraulic fracturing on its 330,000 net acres of land in the Montney shale formation, south of Grande Prairie, Alta.
"Absent of any macro[economic] issues, this would have been a lot easier for them to come to market. I don't see or hear anything about anyone doubting the deliverability of the assets," said Brook Papau, analyst at ITG Investment Research. "The pricing on the low end of the scale is entirely a macro-driven issue, in my mind."
The underwriting syndicate is led by RBC Dominion Securities, Credit Suisse Securities and Peters & Co. Ltd. The deal rings in as the second-largest energy IPO of the year, behind the $1.6-billion float of PrairieSky Royalty Ltd. in early June. That was the richest initial offering in Canada since 2000.
Early this month, the company and its investment bankers set an $800-million target for the treasury portion of the offering, saying the shares could be priced in the range of $17-$21 apiece. That was well below expectations of a month earlier, when the market was stronger.
ARC owns more than 15 per cent of the company and KERN has just over 10 per cent. Neither had said how much they had initially planned to part with. The Canada Pension Plan Investment Board had not signalled it wanted to sell its 19 per cent.
Another oil producer, Teine Energy Ltd., was said to be considering an IPO this fall as well, but recently decided to hold off, given the market downturn, according to sources.
Seven Generations said in its prospectus that it expects to spend $625-million on its operations in the second half of this year and $1.6-billion in 2015.
The shares are expected to start trading on a when-issued based on Thursday.
With files from Carrie Tait in Calgary