An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014.© Todd Korol / Reuters
Oil and gas investors piled into yet another large share sale, signalling renewed interest in the struggling sector – and some encouragement for Canada's independent investment dealers.
When Birchcliff Energy Ltd. announced a $530-million bought deal to finance its acquisition of oil and natural gas assets from Encana Corp. on Tuesday, the financing looked like an aggressive move, considering the company was trying to raise about half of its total market value. Adding to the uncertainty was the fact that the crucial Brexit referendum that has global financial markets on edge was only two days away.
Any fears were quickly put to rest. In no time, the order book grew to about $1.4-billion, according to someone familiar with the transaction, and on the back of such demand Birchcliff decided to "upsize" the deal to $635-million.
The successful offering comes amid renewed hope for a resurgence of energy financings, something that would greatly benefit Canadian oil and gas companies looking for options to help fund their operations. Earlier in June, Suncor raised $2.5-billion to help pay down debt and fund future projects, and the sale drew investor demand that was about double the number of shares available.
Still, there has been some uncertainty about the abilities of smaller energy players, such as Birchcliff, to raise sizable sums of money. Investors have proven much more likely to back big deals from the likes of TransCanada Corp. and Enbridge Inc. The oversubscribed offering puts some of that uncertainty to rest.
The latest financing is also a win for independent investment dealers. In Calgary, there was much consternation after the independents were shut out of the Suncor financing – the underwriting syndicate was filled by large Canadian and global banks. Birchcliff's deal was co-led by National Bank Financial, Cormark Securities, GMP Securities and Scotia Capital.
Birchcliff is using the proceeds to acquire oil and natural gas assets in the Montney region from Encana for $625-million. The acquisition will boost its output by one-third to about 65,000 barrels of oil equivalent a day.
The acquisition also marks another asset swap among energy companies – deals that are starting to become more common again. After a lengthy period with limited activity, Penn West Petroleum Ltd. this month sold its Saskatchewan oil assets to Teine Energy Ltd. for $975-million to help pay down debt, and Athabasca Oil Corp. sold a royalty interest in its bitumen assets this week.
After a dry spell in late 2015, when energy financings largely fell off the map, oil and gas share sales have roared back this year. On an annualized basis, the total value of money raised so far is near the record highs set in 2010 and '11, according to analysts at Raymond James. However, the use of proceeds differs this time.
"The drill bit hasn't been the primary beneficiary of equity issues," the analysts wrote in a note to clients. Instead, most of the money raised has been "directed toward the balance sheet and M&A. Over the mid-term, we expect that proceeds from further equity issues will continue to be a source of deleveraging rather than translate to an increase in capex, and that an improving commodity price landscape will be the primary differential driver of increasing rig activity in North America."
With a report from Jeff Lewis
Tim Kiladze