Oil patch veterans to go public
Seek $210-Million; Duvernay execs launch new oil venture
Carrie Tait, Financial Post Published: Thursday, October 09, 2008
CALGARY - At least three star oil and gas management teams are raising hundreds of millions of dollars in the market right now to kick start new private companies, all as many institutional investors are loath to invest in these illiquid energy outfits in light of the crippling credit and equity markets.
The executives behind Duvernay Oil Corp. -- hot off selling their company to Shell Canada Ltd. for about $6-billion in July -- have set out to raise roughly $210-million, sources say. One of these sources said healthy demand for the offering has allowed them to increase the deal to about $300-million. It is expected to close later this month. The new company is being marketed under the name Tourmaline Oil, the sources said.
"In the face of just an awful, awful energy sector market, that's quite a bit of money to raise," one of the sources said. "That's a real marquee name. Those don't come around very often."
Canetic Resources Trust's old management team is also in the market, and set to raise $300-million under the banner of CanEra Resources, one of the sources said. The last team to run Rider Resources Ltd., which was bought by NuVista Energy Ltd., have also made the rounds raising funds. Tourmaline does not have
any assets yet, a typical strategy for startups launched by high profile oil patch players. Insiders, institutions and high-net-worth individuals are the likely buyers.
The apparent success of these fundraising drives flies in the face of the difficulties many private oil and gas companies are battling. Some institutional investors are demanding an annualized return on investment of up to 50% before pouring money into private outfits.
One oil and gas specialist at a London-based hedge fund said his firm has cranked up its target annualized return on investment to "30% if I really like the idea, 50% if it is not top of my list of things I have to do."
This marks a sharp jump in expectations: This time last year, the firm would have invested in a private oil and gas company with expected returns as low as 20% to 25%. The new standard for rates of return is not limited to just Canada -- companies around the world now have to clear this bar before money pours into their coffers, the hedge fund source said, noting his competitors are also searching for similar comfort zones.
"We can wait for [companies] to go public, prove up the concept, buy in and still make a lot of money, because no one is going to give [them] credit right now," the source, who asked not to be named, said. "It really is liquidity -that's the key on everything right now."
The private companies now have to compete for capital against their public kin. The net asset values of public companies have been slashed as investors flee, making these liquid investments more attractive.
The fact that the Tourmaline is set to raise hundreds of millions of dollars in these messy markets is a testament to the success of Duvernay's principals, who sold that company to Shell for $83 a share in July, up from its initial public offering price of $10.50 per share in February, 2004. Prior to the IPO, it financed itself privately, with a $6.25 per share offering in July, 2003, and a $3.50 per share offering in Sept. 2001
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INVESTOR ANGLE
In the Duvernay deal, non-insiders can buy 15 million shares at $7 each, raising a total of $105-million. Tourmaline founders can buy 15 million shares at $3.50, for a total of $52.5-million, and then must buy an additional 7.5 million shares at $7, again totalling $52.5-million. The insiders have the option of purchasing another million shares at $7, one of the sources said.
Put it all together and the deal is sized between $210-million and $217-million. However, given the success of the original Duvernay team, and the amount of private money that has been sidelined as the market teeters, this deal may have already ballooned.
