Treasury financings completed in the first half of 1999 by Canadian oil and gas exploration and production companies increased by 4% vs. the same period in 1998.
During the first 6 months of 1999, the value of total financings reached $2.86 billion (Canadian) from 133 treasury issues. During the same period in 1998, total financings were $2.75 billion from 197 issues.
These were among the findings of a recent analysis by Sayer Securities Ltd., Calgary.
Analysis
The increase in the overall financings value for the first half of 1999 is attributable to increases in both debt and royalty trusts, says Sayer, in spite of a "significant" decrease in equity financings.
"So far in 1999, debt issues have continued to be the dominant force behind financings completed by Canadian oil and gas companies," said Sayer.
About $2.13 billion was raised through 24 debt placements during the first 6 months of 1999 vs. $1.53 billion through 20 placements during the same period of 1998.
In fact, debt accounted for 74% of the total value of treasury issues in the first half of 1999. This compares with 56% in the first half of 1998 and 40% in first-half 1997, says Sayer.
The firm did not find the increase in debt issues surprising, saying, "Although a portion of the debt raised each year is part of the revolving debt program of major companies, the increase is also a reaction to low interest rates, which make debt a more attractive financing option."
During the first half of 1999, royalty trusts raised a total of $202.2 million from nine royalty trust issues. This compares with $169.5 million from three issues during the same period of 1998.
During the first half of 1999, equity issues were $0.53 billion, down from $1.05 billion raised in the first 6 months of 1998.
"The value of equity issues from treasury has been steadily decreasing since 1996, when it peaked at $2.33 billion during the first halfellipse," said Sayer.
"It should be noted that May and June of 1999 were highlighted by a resurgence in equity issues as capital markets felt the effects of more positive market fundamentals resulting from increased oil and gas prices, lower interest rates, and the return of investor interest in the oil patch." Equity financings for these 2 months totaled $463 million.
Sayer sees the ability of firms-both large and small-to raise equity funds as strong, given the sustainability of healthier oil and gas prices.
