Funds eye low-priced assets as companies settle into the "new normal" after second anniversary of crude price crash
CALGARY—The largest energy-focused private equity firm in Calgary is ramping up its oilpatch investing pace to take advantage of bargain prices and an expected recovery in oil prices next year.
ARC Financial Corp. has been more active than usual in 2016, fuelled in part by $1.5 billion pledged a year ago to a new investment fund, said co-CEO Lauchlan Currie in a recent interview. ARC has $5.3 billion in investor commitments through eight energy funds and has invested in over 180 companies over the past two decades.
“We are backing a number of early stage private companies that are out looking for acquisitions,” Currie said.
“We just see it as one of the best opportunities in a long time because we’re anticipating a recovery probably into 2017. And we’re capturing high-quality assets that you’re just not normally going to get access to.”
Bruce Edgelow, vice-president of strategic initiatives for ATB Financial, said in a recent interview that commodity price volatility has made it difficult for buyers and sellers to agree on prices over the past two years. But he said there are plenty of well-heeled Canadian and international investors waiting in the wings to spend money in the Western Canada oil and gas sector.
“We think the number is very conservatively $10 billion Cdn that is available to do the transactions,” he said.
“The capital has been there almost since this downturn started but we have not seen the deployment of it quite yet because the gateposts are fairly wide between the buyers and the sellers.”
Last week, Rising Star Resources, a newly created junior oil and gas producer, announced it had raised $25 million from private equity firms Lex Capital of Regina and 32 Degrees Capital of Calgary.
CEO Steve Sugianto said accessing private equity was the only option for Rising Star which wanted to buy oil-weighted production at a reasonable price—$30 million—from Calgary junior Petrus Resources.
“We were looking for private because we feel like, with the timing, the public market is still not quite open yet for the small guy,” he said.
Mitch Putnam, managing partner at 32 Degrees, said the private equity firm has about $200 million under management and is looking to invest it with proven management teams in “bite sizes” of $10 million to $15 million each—it has pledged $10 million to Rising Star.
“Last year, I think we were all a little paralyzed. The deal flow just wasn’t happening for private equity and particularly for us,” he said. “I just don’t think the assets were available as they are today.”
He said companies are now more willing to sell because of the length of the commodity price downturn, lack of access to public capital markets and pressure from their lenders. Average prices are falling in response.
“I’m just quite happy to be placing money at this part in the cycle,” he said.
Putnam said 32 Degrees took part in only one financing deal last year. This year it’s done two new deals and two top-ups of existing deals, taking its roster to about 15 companies.
Currie wouldn’t provide a list of ARC’s investments this year but confirmed those that have been made public.
That includes taking Calgary junior Boulder Energy private by buying its publicly listed shares for $125 million (plus assuming $143 million in debt) and injecting $150 million into startup Longshore Resources to help it buy Alberta assets. It also backed private STEP Energy Services’ purchase of failed Calgary well fracking firm Sanjel and invested an undisclosed amount in Wayfinder, a company that supplies fracking sand used in well completion operations.
He said ARC looks for investments of between $50 million and $200 million and aims to withdraw its investment, along with a good return, in three to six years.