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After years of tough slugging, Canada’s junior oils are back in the spotlight, riding the low Canadian dollar, higher oil and gas prices and an influx of new capital — a lot of it American.
IPOs, brisk merger and acquisition activity, soaring share prices are signs the entrepreneurial ranks of Canada’s oil patch are growing again, said Gary Leach, president of the Explorers and Producers Association of Canada.
“You have to have the right profile, the right management team and the right story, but definitely the doorway has been kicked open in the equity markets,” Mr. Leach said. “There is an appetite for Canadian juniors and intermediate companies, and that is great to see because this industry has been waiting for quite some time.”
If the trend holds, it could mean a new round of industry renewal led by juniors focused on producing oil and gas using horizontal multi-stage fracturing of tight rock.
“There is quite a better mood since the start of the year, than at any time in the past three,” said Kevin Adair, president and CEO of Petrus Resources Ltd., a private oil and gas junior company that produces about 5,000 barrels a day. “It seems capital is willing to take a chance on new teams and I think there will be a resurgence of teams starting up again, and new names — not just the same guys cycling for another round.”
The shares of the smallest producers (enterprise value less than $500-million) tracked by energy investment dealer Peters & Co.’s PE 125 Small Producers index rose 14% on average in the second quarter, and the shares of bigger junior producers (enterprise value between $500-million and $1-billion) included in the PE 125 Junior Producers gained 13%. Smaller companies matched or outpaced the share appreciation of senior energy companies and beat the S&P/TSX composite index, which was up 5%, and the Dow Jones Industrial Average, which was up 2%.
The rebound in natural gas prices supported “exceptional returns” during the second quarter for natural gas-weighted producers such as Delphi Energy Corp. (up 62%), Perpetual Energy Inc. (up 57%), Crocotta Energy Inc. (up 38%) and Advantage Oil & Gas Ltd. (up 31%), Calgary-based Peters said in a report.
Spot natural gas at Alberta’s AECO-C hub sold on average for nearly $4.70 per thousand cubic feet in the second quarter, up 32% from the same period last year. Light oil in Edmonton sold for $104 a barrel on average, up 12% from the same period last year.
Ken Bowie, president and CEO of Spry2 Energy Inc., a private oil and gas junior that produces about 1,600 barrels of oil equivalent a day, said higher gas prices are making a difference.
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