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Athabasca IPO melds oil sands' might, China muscle
April 1, 2010 / 9:19 PM / 8 years ago

Athabasca IPO melds oil sands' might, China muscle

TORONTO/CALGARY (Reuters) - Athabasca Oil Sands Corp’s IPO, the biggest in Canada in years, heralds a return to the oil sands by investors from home and abroad, and the growing power of China to direct capital flows.

Athabasca, which is developing northern Alberta oil sands projects in partnership with state-owned PetroChina (PTR.N)(0857.HK), said this week it planned to raise as much as C$1.55 billion ($1.52 billion) in its initial public stock offering. That makes it Canada’s largest IPO in more than a decade.

Actual demand for the stock was about C$2 billion, according to people with knowledge of the deal, much of that from Chinese investors following the lead of the powerful state company.

The IPO will raise double the funds Athabasca targeted when it originally announced the deal just a month ago, and it has helped boost the shares of other oil sands players.

The oil sands are the largest crude deposits outside the Middle East and are a growing source of supply for the United States. The economic meltdown has helped lower development costs, but environmental and policy risks remain.

“I think this should make investors sit up and take notice of valuation opportunities in the sector,” said Mark Friesen, an analyst at Versant Partners in Calgary.

“So, yes, the Athabasca IPO has a part to play in investors’ views of opportunities in existing companies. Also, strong oil prices should make investors more optimistic about oil sands opportunities.”

On the Toronto Stock Exchange on Thursday, shares of oil sands developer Suncor Energy Inc (SU.TO) rose nearly 4 percent, while Cenovus Energy (CVE.N) was up 6.3 percent, and Canadian Oil Sands Trust COS_u.TO climbed over 5 percent.

Numerous developers have rekindled oil sands plans as the economy has improved and more are considering IPOs as valuations come into line with what they might get in a takeover.

“But it still is a very discerning buyer universe,” said Ted Larkin, UBS Securities Canada’s head of equity capital markets. “It is still about the right company with the right story, and this is a market that is willing to buy those stories.”

The re-sized Athabasca deal comes as oil hit $85 a barrel on Thursday for the first time in 2010, having held a $70-$80 range for months.

A DIFFERENT KIND OF IPO

The deal is Canada’s richest IPO since Manulife (MFC.TO), the country’s largest life insurer, raised C$2.49 billion in 1999. What stands out as notable in it is the absence of all but one of Canada’s top banks. Toronto-Dominion Bank (TD.TO) is the only one involved.

Not including an over-allotment option, Athabasca will sell at least 75 million shares at C$18 each for C$1.32 billion through a syndicate of underwriters led by Morgan Stanley Canada Ltd and GMP Securities.

Bay Street sources said investors from China, likely linked to sovereign wealth funds, are in for at least C$500 million, or more than one third of total demand.

An Athabasca spokesman declined to comment on the buyers.

One buy-side manager who will not be buying the stock noted: “It’s bizarre. I don’t know anybody who is buying in, but it (the deal) is just massive.”

Observers note that Athabasca’s assets, while good, do not stand head and shoulders above those of other companies in the highly speculative sector. Several consulted for this article said investors may have piled in on the heels of PetroChina.

“I think a lot of it was on the back of the Chinese, and for China getting in, which adds a dimension to the story that is powerful and unique in many regards,” said one investment banker who preferred not to be named.

“In some regard, people are sort of betting with the jockey here, with the jockey being Petrochina.”

Also notable in the IPO is the valuation, which is roughly in line with Athabasca’s C$1.9 billion sale in 2009 of a stake in its two oil sands projects to PetroChina.

Those projects, MacKay River and Dover, could eventually produce as much as 500,000 barrels per day.

Athabasca has said its holdings may contain as much as 7.1 billion barrels of tar-like bitumen.

Editing by Peter Galloway

Our Standards:The Thomson Reuters Trust Principles.
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