Baytex Energy Corp.'s $1.8-billion takeover of Aurora Oil & Gas, a deal that launches it into Texas light oil, couldn't come at a better time for investment dealers, which have just closed the curtain on the slowest year for energy in the oil patch in half a decade.
The $1.3-billion equity financing that accompanies Calgary-based Baytex's bid for the Australia-based company rings in at more than half the value of all the oil and gas issues in the fourth quarter of 2013. It is also worth more than the total in each of the previous three quarters, according to data from TD Securities.
Here's another superlative: The offering – which sold out on Friday – is the largest equity financing in Canadian oil and gas since Athabasca Oil Corp.'s $1.35-billion initial public offering in April, 2010, according to Sayer Energy Advisors, which tracks finance as well as merger-and-acquisition statistics.
The syndicate, led by Scotiabank and RBC Dominion Securities, includes 17 dealers – the Big Six Canadian banks, plus numerous independents and some internationals. Their fees, at 2 per cent, are relatively low for this kind of deal, at about half the average. They will share at least $26-million before overallotments, according to the term sheet. Together, the major banks get 85 per cent.
It is a bought deal of 33.4 million subscription receipts at $38.90 apiece. Each receipt is exchangeable for a Baytex share when the deal closes, some time in May if all goes according to plan.
Baytex shares took a beating in the first session following the announcement of the deal, which gives the company a sizable foothold in the Eagle Ford region of South Texas, one of the main contributors to surging domestic light oil output in the United States.
The stock was down more than 5 per cent in the early afternoon, as some investors worried about Baytex's increased debt load following the deal. It is taking on $744-million of Aurora debt.
Baytex's acquisition ends a long dry spell for billion-dollar-plus acquisitions by Canadian oil companies, something that used to be commonplace, especially during the era of energy income trusts.
The last similarly-sized takeover was the $2.6-billion acquisition of Celtic Exploration Ltd. in 2012. The deal gets an asterisk though because U.S.-based Exxon Mobil Corp. announced it and its Canadian affiliate, Imperial Oil Ltd., signed on as a partner later.
Prior to that, the largest acquisition by a Canadian energy player was Petrobank Energy and Resources' $2.2-billion takeover of TriStar Oil & Gas Ltd. in August, 2009, according to Sayer.
Sayer vice-president Tom Pavic pointed out that the last sizable transaction with similar characteristics to Baytex's was Crescent Point Energy Corp.'s $784-million (U.S.) takeover of Ute Energy Upstream Holdings LLC in November, 2012, a deal that gave it assets in Utah.
As part of that, Crescent Point completed an $800-million equity financing.