Teine Energy Said to Push Back Canada IPO Amid Oil PlungeScott Deveau, Rebecca Penty and Doug Alexander
Teine Energy Ltd., a Canadian oil and gas producer majority owned by Canada Pension Plan Investment Board, has pushed back the timing of its initial public offering amid the sharp drop in oil prices, according to people familiar with the matter.
The slump in the price of oil is threatening to put the brakes on what has been a banner year for dealmaking in Canada’s energy patch. Oil and gas companies have raised a record $10.8 billion from share sales this year, more than three times the $3.25 billion raised last year, data compiled by Bloomberg show.
Teine, which had planned to sell shares this fall, has yet to file documents with Canadian regulators. The Calgary-based company is waiting to see what happens with the Seven Generations Energy Ltd. IPO later this month before deciding whether to press ahead, potentially pushing the sale into 2015, said two people who asked not to be identified because the discussions are private.
“It’s a tough environment,” Shane Fildes, the Calgary-based head of global energy at the Bank of Montreal, said in a telephone interview. “The best litmus test is going to be Seven Generations.”
Fildes’s bank is among the group of 16 firms helping Seven Generations as it seeks to raise about C$800 million ($709 million). The Calgary-based producer plans to set a final price for the shares during the week of Oct. 27.
Teine, the largest light-oil producer in the Viking formation in southwestern Saskatchewan, was working on a plan to raise as much as C$700 million ($643 million), people with knowledge of the matter had said in early September, noting that the deal was expected within a few weeks.
Teine Chief Executive Officer David Tuer declined to comment on the delay.
The price of Brent crude oil this week hit its cheapest level since 2010, amid concerns about global growth and as supplies in the U.S. surged. Along with the drop has come a 13 percent fall in the shares of Canadian energy companies traded on the Standard & Poors/TSX Energy Index over the past month.
It’s not just IPOs. Falling oil prices will also impact takeovers in the energy market, by making it more difficult for potential buyers to raise funds for big deals -- at least in the short term.
“All companies are going to pull back from the marketplace because there’s not going to be an attractive market for their shares,” said Ian Russell, president and CEO of the Investment Industry Association of Canada, which represents about 160 securities firms. “That’s going to be a shorter-term phenomenon.”
If the drop in crude oil lingers, it could lead to a gap in expectations between buyers and sellers that makes it difficult to close deals, said Gregory Turnbull, a Calgary-based partner at McCarthy Tetrault LLP specializing in corporate finance for oil and gas companies.
“The sellers are all keeping $100 oil in their mind and the buyers very quickly change to the new realty of $80 oil,” he said. “We see a disconnect in prices and the deal flow really slows down.”
It poses a sharp turnaround for Canada’s investment banks, which have benefited from oil and gas industry deals this year. Of the $145 billion worth of mergers and acquisitions involving Canadian companies this year, 24 percent, or $35 billion, are from the oil and gas sector, Bloomberg’s data show. That’s almost a threefold increase compared with the same period last year.
Still, those companies that are better capitalized will be able to get deals done and companies that were previously out of reach of buyers will get a second look, said Michael Freeborn, the Calgary-based head of energy investment banking at Canadian Imperial Bank of Commerce.
“It could mean massive opportunity because you have the stronger, well-capitalized players that see value and there may finally be a forcing function for some of the targets, be it financing; be it shareholders who agitate for something to happen,” he said in a telephone interview.
For IPOs like Seven Generations, which is already underway, success may be determined by a company’s willingness to lower its price. Seven Generation set its IPO price below some investors’ expectations.
The energy producer is offering its shares for C$17 to C$21, according to a company filing, compared with expectations of a price as high as C$30 a share.
“The bloom is off the rose for the higher end,” McCarthy Tetrault’s Turnbull said.