By OGJ editors
HOUSTON, Aug. 13 -- Treasury financings for the Canadian oil and gas industry during the first half of this year soared to $7 billion (Can.)—the highest level in a decade—according to Sayer Securities Ltd., an investment firm specializing in oil industry merger and acquisition (M&A) activity. Frank J.D. Sayer, founder and president of the Calgary-based company, said, "In the recent past, only 1996 comes close, with a total of $4.2 billion."
The upward creep of prime interest rates in Canada to 4.25% by June from a 10-year low of 3.75% in January, was the trigger prompting many major Canadian oil and gas companies to fix debt costs before rates climbed higher, Sayer said.
The first half total this year represents a 206% increase over the first half of 2001; the 6-month period total is greater than any annual total during the last 10 years, according to Sayer.
About $5.7 billion of the new financings is for debt, Sayer said. Majors secured 98% of the debt total, with Suncor Energy Inc. and Nexen Inc., both of Calgary, securing financing for $803.3 million and $794.3 million, respectively. And Calgary-based Western Oil Sands Inc. secured $706.8 million based on projected production of its oil sands project in early 2003.
Equity financings increased by 156% over the first half of 2001, up $770 million from $300 million during the same period in 2001. Start-up companies accessing the market in the first 6 months were instrumental in pushing this number upward, Sayer said. Such companies as Ormat Industries Ltd. unit OPTI Canada Inc., for example, raised $90 million, and Fairborne Energy Ltd., $30 million.
Nevertheless, new start-ups have not created as great a volume of financings as large companies that did business in the past, many of which have now been acquired by others. The new start-ups, or "junior players," Sayer said, also tend to raise funds for private companies rather than public ones. He said 37% of the first half equity total was in this category.
Other issues, primarily royalty income trusts (RITS), decreased slightly to $520 million in the first half from $630 million last year in the same period, Sayer said, yet it remains the second highest in this category within the past 5 years.
"RITS' strength in the financing markets accelerated some fundamental restructuring on the part of Canadian exploration and production companies," Sayer said. In the past year, a number of oil and gas companies have converted themselves into RITS to take advantage of this strength, he said. "Now we are seeing a new change in the E&P companies," he said, adding, "This type of change will increase the number of players accessing funds in the RIT market and could further increase the level of M&A activity."