Varcoe: Oilfield IPO pipeline being built, says TMX Group chief

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Energy prices continue to rise and although the number of new public offerings and the amount of equity raised by oil producers remains weak, the head of TMX Group thinks the situation could change.

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“It’s fascinating because it’s a bit of a tale of two cities right now,” John McKenzie, CEO of TMX Group, which runs the Toronto Stock Exchange and TSX Venture Exchange, told the House of Commons. Calgary trade this week.

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“In terms of financing, we used to do $20 billion to $30 billion a year in public market financing in the sector. And this year we’re on track for one ($1 billion) – and it’s going to be one of the best years we’ve had in the last few years,” he added.

“Now the silver lining (is) with price strength you’re starting to see a lot more companies coming to us on potential IPOs or potential spinoffs… So we’re starting to build a pipeline of future IPOs again in the area. “

Canadian energy stocks have had a strong 2022 as commodity prices have risen this year. Oil producers have seen increased cash flow and are returning record sums to investors.

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The revival comes after years of hard work and a painful downturn at the start of the pandemic. Year-to-date, the S&P/TSX Capped Energy Index is up 56%.

Energy now makes up around 19% of the overall S&P/TSX Composite Index, a jump from just 10% in November 2020 – though still below the 27% level seen in 2014 before the price crash petrol.

What hasn’t rebounded is a wave of new small or medium-sized companies being created and raising funds through initial public offerings.

And total equity raised by Canadian oil producers was around $800 million in the first nine months of the year, up from $2.2 billion in 2021, according to Sayer Energy Advisors.

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The Calgary-based company notes that there have only been three oil producer IPOs in Canada since 2018, including Topaz Energy in 2020 and Source Rock Royalties earlier this year.

Sayer Chairman Tom Pavic does not expect to see a wave of new oil sector players suddenly joining Canadian exchanges, even as the stock prices of publicly traded producers improve this year.

“It’s still quite premature. I think oil and gas company valuations still need to be established before we see any of these companies pursue an IPO,” he said.

As Reuters recently reported, TotalEnergies is seeking to turn its Alberta oil sands properties into a new public company.

Canoe Financial Senior Portfolio Manager Rafi Tahmazian noted that there is little need for most producers to issue shares today as the industry is in a very strong financial position and debt levels decrease.

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The sector has also gone through a cycle of mergers and acquisitions, with companies focusing more on returning money to investors, no longer spending to increase production.

“Companies are reshaping and the basin is moving into a new phase,” he added. “I think the investor appetite (for IPOs) is not there.”

As part of the industry’s overhaul, the number of publicly traded Canadian oil and gas companies has fallen by two-thirds over the past decade, from 394 companies operating in 2012 to just 131 today, according to Raymond James ..

“Typically, you see more funding when stocks hit multi-year highs to fund growth, but the way our pool is here in Canada, it’s not a growth pool anymore… It’s about who can get the lowest costs,” said analyst Jeremy McCrea of ​​Raymond James.

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Doug Bartole, CEO of junior producer InPlay Oil, which is listed on the Toronto Stock Exchange, said it’s difficult for small companies to go public today, even with high commodity prices. Government policies and regulations also make it difficult for the entire industry.

“Debt is always cheaper than raising a bunch of equity,” he added. “Capital has left the industry…and that brings us back to the uncertainty of it all.”

Business Council of Alberta President Mac Van Wielingen, founder and partner of ARC Financial Corp., noted that many new junior oil and gas companies start and grow as private companies, while some managers of institutional funds are facing edicts from investors that “you don’t invest in oil and gas.

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“Oil and gas stocks in the markets are outperforming everything and yet you don’t see any IPOs… There’s new money coming in, but it’s mostly private,” he said.

“The best case scenario would be if you have open private and public markets for these entrepreneurial ventures.”

In an interview, McKenzie said potential oilfield IPOs would likely come from private companies that are seeing their valuations improve and are looking to test the public market, or are part of larger institutions that can be integrated. in the public domain.

“Companies need to see successful deals and few want to come first,” he added.

“Once companies see successful deals come to fruition, they can follow.”

Chris Varcoe is a columnist for the Calgary Herald.

cvarcoe@postmedia.com