Skip to main content

The initial public offering of Seven Generations Energy Ltd. was the second-largest in the oil patch this year. But despite a feeding frenzy in mergers and acquisitions in the first nine months of the year, the future does not look as brightJeff McIntosh/The Canadian Press

The initial public offering of Seven Generations Energy Ltd. was the second-largest in the oil patch this year. It may be the end of the Calgary financing frenzy for a while.

The offering by the Alberta Montney liquids-rich gas producer raised $932-million , although it lowered its expectations in the two months leading up to the deal as oil prices went into a tailspin and the shine on energy shares faded.

The oil patch has had two other equity financings of note since the end of the third quarter, according to Calgary-based Sayer Energy Advisors. One was a $100-million bought deal by Elkwater Resources Ltd., which is using the proceeds to buy Exoro Energy Inc. and changing its name to Striker Exploration Corp.

The other was a private-equity financing for a startup medium- and heavy-grade oil player called Deltastream Energy Corp. The financing, a $100-million deal announced last week, was led by ARC Financial Corp. and included an equity commitment from a unit of Wells Fargo & Co.

All of that is good business for dealers, but the future does not look as bright as it did just a few months ago. For the first nine months of the year, the sector had a feeding frenzy in mergers and acquisitions as well as financings, helped by strong natural gas prices and unusually narrow discounts on heavy crude oil.

Now, the rapid drop in oil prices appears to be taking its toll.

"Some of the planned IPOs have been put on hold for now, and it looks like financings have gone down in the equity markets, definitely," said Tom Pavic, vice-president at Sayer.

"I think a lot of that has to do with share prices coming down quite a bit and a lot of guys not wanting to issue more expensive equity."

In the third quarter, debt and equity financings among energy producers totalled $4-billion, with equity accounting for $2.5-billion of it. Compare that to a $2.4-billion total in the same period of 2013. Equity deals represented $1.1-billion, according to Sayer.

In fact, September, 2013, marked the beginning of a boom in financing that now appears to be in jeopardy. It reached its peak in the second quarter, when Encana Corp. completed its $1.67-billion issue of PrairieSky Royalty Ltd. shares, the largest IPO in Canada in 14 years.

Since mid-June, though, North American crude oil prices have fallen by 25 per cent, as has the S&P/TSX Energy Index.

At least one prospective IPO candidate, Teine Energy Ltd., has opted to hold off on any plans to go public with the market looking bearish.

Even Seven Generations, the horizontal drilling and fracking firm whose IPO had been anxiously awaited by energy investors, priced its deal at the lower end of its expectations. Two of its major shareholders, ARC and KERN Partners, cancelled plans for a secondary offering to coincide with the treasury issue.

Still, the offering was oversubscribed and the shares have traded above the $18 issue prices since the deal closed last week.

Report an error

Editorial code of conduct

Tickers mentioned in this story