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It was the type of year when chief financial officers had to search hard and use every tool at their disposal to fortify their companies’ balance sheets.
With crude oil shedding 45 per cent of their value in 2015, Canadian oil and gas producers glumly took an axe to their costs.
“The industry adopted a very pragmatic and very nimble approach,” says Trevor Gardner, a good investment banker with RBC Capital Markets. “They saw their business models changing and had to reconsider their financial position on the very frequent basis all year round.”
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Cenovus Energy Inc. was initially among the big players to move early, raising $1.5 billion via a syndicate of underwriters led by Royal Bank of Canada and TD Securities.
“Cenovus took the initiative to access equity capital markets early in the power market sell-off, which appears like a really astute move using the benefit of hindsight,” says Sante Corona, head of equity capital markets at TD.
Encana Corp.’s $1.4 billion bought deal offering led by RBC, Credit Suisse and Bank of Nova Scotia, followed within weeks, suggesting that well-run companies could still access markets in the depressed environment.
“Through part one of the season, we saw a good deal of equity financing where a lot of it was to shore up balance sheets,” says Mike Freeborn of one’s investment banking at CIBC Capital Markets. “They were glad they did as the year ended up even worse than anyone expected.”
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As oil prices briefly rallied to as much as US$66 by June, the very first half saw a decent $6.6 billion of equity capital raised within the energy space, before oil’s inexorable decline within the second half resulted in just over $2 billion in equity deals.
In a bid to boost growth and dividends, Enbridge Inc. proceeded with a stock-and-debt decrease of its Canadian liquids pipeline business and renewable assets worth $30.4 billion to subsidiary Enbridge Income Fund Holdings Inc., which makes it the biggest 2015 cope with a Canadian target, according to CIBC. Subsequently, EIFH issued a $700 million equity issuance included in the transaction, and the fund is planning similar offerings annually till 2018.
In the relentless hunt to secure liquidity, companies also sought to jettison non-core assets. In June, Cenovus Energy Inc. hived off its royalty lands to Ontario Teachers’ Type of pension for $3.3 billion.
Canadian Natural Resources Ltd. also struck a cash-share deal because of its royalty land with Prairie Sky Royalty Ltd. There’s scope for smaller royalty deals, as they are viewed as defensive investments, says Kent Ferguson of RBC. “The transactions which were done were at very compelling multiples for that vendors, and incredibly readily financed through the buyers. We’d expect that trend royalty sales and financing to be possible in 2016.”
Suncor Energy Inc. also moved swiftly and aggressively to acquire Canadian Oil Sands Ltd. having a hostile $4.3 billion bid, benefiting from affordable prices. The COS management finally acquiesced to some slightly improved Suncor offer in January.
John Armstrong, head of Canadian M&A at BMO Capital Markets, believes more top tier assets might be visiting the market as companies hunker down for that prolonged downturn, with deep-pocketed players waiting to pounce.
“In the energy space, we believe there’s a wall of cash from private equity and pension funds seeking to look for a home, which we estimate, from the dry-powder perspective, to be US$175 billion whenever we consider private equity finance and pension funds chasing energy opportunities,” Armstrong says.
yhussain@nationalpost.com
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