Canada energy IPOs tough sell even as institutions return to sector

Canada Energy Partners

13/10/2022 18:58

By Nia Williams and Divya Rajagopal
       Oct 13 (Reuters) - Institutional investors are returning
to the Canadian oil and gas sector with gusto after shunning the
industry over ESG concerns in recent years, but the appetite for
new energy listings remains limited due to wider market
volatility.
    French oil major TotalEnergies  TTEF.PA  will be the first
major test of energy investor interest for new listings. Last
month, it unveiled plans to spin off its Canadian oil sands
assets into a new publicly traded company, which surprised many
industry watchers. urn:newsml:reuters.com:*:nL1N30Z2GO
    The next day, Teck Resources  TECKb.TO  said it was also
considering a spin-off of its Fort Hills oil sands project, in
which it is a part-owner with TotalEnergies and Suncor Energy
 SU.TO . urn:newsml:reuters.com:*:nL1N3101NT
    The success of any initial public offerings (IPOs) over the
next year would depend on whether oil price volatility calms
down after turbulence in 2022 following Russia's invasion of
Ukraine and on worries about global recession, investment
bankers and analysts said.
    "The energy sector has performed quite well and valuations
remain attractive ... but everyone is braced for more volatility
and will likely remain cautious until it ends," said Jeremy
McCrea, an analyst at brokerage Raymond James.
    McCrea expects the recent trend of takeovers of private
Canadian oil companies by larger companies to continue rather
than the IPO route.
    The last time a new Canadian energy listing appeared on the
TSX was in January when Calgary-based Kiwetinohk Energy Corp
 KEC.TO  shares started trading. Kiwetinohk shares have climbed
about 14% since their debut as oil and gas stocks rallied.
    HESITANT BUYERS
    Scott Barron, head of Calgary Investment Banking at TD
Securities, said confidential work has been done this year on
several IPOs which have not come to market.
    "We have seen very, very few (IPOs) in Canada and the U.S.
and that's a symptom of the fact investors lost a lot of money
after the IPO boom of the last couple of years. They are really
hesitant to go back into new issues," Barron said, referring to
IPOs in sectors across North America.
    Despite the caution around IPOs, energy and power companies
had the greatest share of issuance in the first nine months of
2022, with C$3 billion worth of secondary offering according to
data from Refinitv. 
    Institutional ownership in the Canadian mid-cap explorer and
producer sector has rebounded to 37.3% in the second quarter of
2022, up from 28.9% in the fourth quarter of 2020, according to
Thomson One data. The sector includes Canada's largest gas
producer Tourmaline Oil Corp  TOU.TO  and Advantage Energy Ltd
 AAV.TO , 
    Capital investment in the energy sector took a dive after
oil prices crashed in 2014/15, and as climate change concerns
prompted some long-term investors like Caisse de dépôt et
placement du Québec (CDPQ) to divest fossil fuel holdings.
 urn:newsml:reuters.com:*:nL1N2QU1J8
    Now, energy stocks have become a refuge for investors facing
a sell-off in high growth sectors.
    In the last year the TSX Capped Energy Index has given
investors a 53.25% return, while the broader TSX composite index
has  slumped by 11%. Nearly half of the 30 top-performing stocks
on the TSX over last three years are from the energy sector,
according to data released by the TSX in September this year.
    Some energy investors welcomed the idea of more Canadian oil
and gas listings. Rafi Tahmazian, senior portfolio manager at
Canoe Financial, said TotalEnergies' spin-off may take time to
appreciate in value but he expected it to perform well. 
    "I've seen massive consolidation in my sector, I want more
things to invest in and more variety," Tahmazian said.
 (Reporting by Nia Williams; Editing by David Gregorio)
 ((nia.williams@thomsonreuters.com; +1 403 531 1624; Reuters
Messaging: nia.williams.thomsonreuters.com@reuters.net))