Sayer Securities: $11.4 billion (Can.) in 2003 Canadian oil industry financings

By OGJ editors
HOUSTON, Jan. 28 -- The total value of Canadian oil industry financings of $11.4 billion (Can.) for 2003 set a new record, increasing from the 2002 total of $10 billion, Sayer Securites Ltd. said.

"In 2003, all the stars were aligned in the financing markets for the oil industry," said Calgary-based Sayer Securities analyst Brent R. Heinz.

He noted that 2003 marked the third consecutive year of increases, spurred from high oil and natural gas prices, low interest rates, increased market demand for royalty income trusts (RITs), and the resurgence of small capitalization companies tapping the equity market.

RITs
The most striking change in the three categories of financings was a 190% increase in RIT unit issues. The level increased to $4.1 billion in 2003 from $1.4 billion in 2002. Looking back to 2001 and 2000, the total RIT financings were $1.4 billion and $800 million, respectively.

In 2003, RITs purchased $4.5 billion worth of assets, showing a high correlation between RIT unit issues and acquisition dollars spent. Much of RIT financing dollars went to acquiring new oil and gas assets to replace production and grow reserves, Heinz said.

The growth in RIT financings is related not only to more acquisitions for each RIT, but it also reflects a growing RIT market. The number of RITS was 15 in 2000, and that had increased to 18 at the end of 2002.

"However, in 2003, 10 new RITs entered the market, primarily through reorganizations of exploration and production companies," Heinz said.

Debt category
Despite the surge in capital entering the RIT market, the debt category still dominated 2003 statistics with a value of $5 billion, Heinz said. Mimicking the trend in 2002, straight debt dominated this category as opposed to convertible debt.

The primary issuers were again the senior exploration and production companies, including Nexen Inc. ($1.18 billion in two transactions), PetroCanada ($814 million in two transactions), EnCana Corp. ($671 million in one issue) and Suncor Energy Inc. ($657 million in one issue). All the companies are based in Calgary.

These deals together accounted for 67% of the total debt financings in 2003. EnCana's issue was the largest issue during the year, but was not as large as that of last year's leader Suncor, which raised $804 million in one issue.

RITs also contributed to debt financing with Canadian Oil Sands Trust, Calgary, issuing $570 million in two deals, and Pengrowth Energy Trust, Calgary, issuing $291.5 million also in two deals.

Collectively RITs issued $1.55 billion in debt, spread over 11 transactions, which made up 31% of the total debt financings for the year. The combination of RIT unit offerings and RIT debt issues equated to a total contribution by RITs to the financing market of $6.5 billion, or 57% of the total financings for the year compared with19% in 2002.

Equities
Another strong area of the market was equities, with investors contributing $2.30 billion. This marked the third consecutive third year of increasing equity issues and a 46% increase over the 2002 total of $1.57 billion.

"Similar to 2002, in 2003 the lion's share of equity issues were by junior producers while the senior E&P companies were absent from the equity markets," Heinz said. "If the equity is split between straight equity and flow-through or "tax" equity money, the statistics show that both types of investments have increased. Straight equity accounted for $1.74 billion, 40% higher than in 2002, and the highest amount since 1997."

The largest equity issue of $140 million was by the Calgary-based First Calgary Petroleums Ltd., which has operations primarily in Algeria. This was in addition to an earlier issue in January 2003 of $35 million.

The Calgary-based Niko Resources Ltd., which has operations in India and Bangladesh, raised $39 million in equity.