Canadian Energy IPOs Sell Hard Even as Institutions Return to Sector

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Institutional investors are enthusiastically returning to the Canadian oil and gas sector after shunning the industry due to ESG concerns in recent years, but appetite for new listings in the energy sector remains limited due to volatility increase in the market.

The French oil group TotalEnergies will be the first major test of energy investors’ interest in the new listings. Last month, it disclosed plans to spin off its Canadian oil sands assets to a new publicly traded company, surprising many industry watchers.

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The following day, Teck Resources said it was also considering a spin-off of its Fort Hills oil sands project, which it co-owns with TotalEnergies and Suncor Energy.

The success of any initial public offering (IPO) over the next year will depend on whether oil price volatility calms after the turmoil of 2022 following Russia’s invasion of Ukraine and concerns about global recession, investment bankers and analysts said.

« The energy sector has done quite well and valuations remain attractive…but everyone is bracing for more volatility and will likely remain cautious until the end, » said Jeremy McCrea, analyst at broker Raymond. James.

McCrea expects the recent trend of takeovers of private Canadian oil companies by larger corporations to continue rather than the path of IPOs.

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The last time a new Canadian energy listing appeared on the TSX was in January, when shares of Calgary-based Kiwetinohk Energy Corp began trading. Shares of Kiwetinohk 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 was done this year on several IPOs that did not hit the market.

“We have seen very, very few (IPOs) in Canada and the United States and this is a symptom of the fact that investors have lost a lot of money after the IPO boom of the last two years. . They’re really hesitant to come back to new issues,” Barron said, referring to IPOs in industries across North America.

Despite caution surrounding IPOs, energy and power companies had the largest share of issuance in the first nine months of 2022, with secondary offering worth C$3 billion. according to data from Refinitv.

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Institutional ownership in Canada’s mid-cap explorers and producers sector rebounded to 37.3% in the second quarter of 2022 from 28.9% in the fourth quarter of 2020, according to data from Thomson One. The sector includes Canada’s largest gas producer, Tourmaline Oil Corp and Advantage Energy Ltd,

Capital investment in the energy sector plunged after the fall in oil prices in 2014-2015, and as concerns about climate change prompted some long-term investors like the Caisse de depot et placement du Quebec (CDPQ) to divest themselves of their fossil fuel assets.

Today, energy stocks have become a haven for investors facing a sell-off in high-growth sectors.

Over the past year, the TSX Capped Energy Index has returned investors 53.25%, while the broader TSX Composite Index has fallen 11%. Almost half of the 30 best performing stocks on the TSX over the past three years have come from the energy sector, according to data released by the TSX in September this year.

Some investors in the energy sector have welcomed the idea of ​​more listings from Canadian oil and gas companies. Rafi Tahmazian, senior portfolio manager at Canoe Financial, said the TotalEnergies split could take time to appreciate in value, but he expected it to perform well.

“I’ve seen massive consolidation in my industry, I want more things to invest in and more variety,” Tahmazian said. (Reporting by Nia Williams; Editing by David Gregorio)