Dearth of Energy Stock Offerings Puts Calgary Bankers at Risk

Stock offerings are rebounding across Canada’s equity market, except for oil and gas companies, where issuance has dried up to the point that investment banks are scaling back their activities in Calgary.

Stifel Financial Corp. closed its office in the country’s energy capital last week, citing “current market conditions” as the St. Louis-based firm reduced staff in Canada. Raymond James closed its office in the city in 2023 and laid off staff elsewhere in Canada last week.

The reductions come amid a broader decline in oil and gas stock deals in Canada. There have been just 15 equity offerings in the country’s energy sector on the Toronto Stock Exchange (TSX) and smaller TSX-Venture Exchange for a total of C$270 million. More than half of that was by one company, Saturn Oil & Gas Inc., which raised C$100 million in May and C$50 million in February.

At this rate, it will take a dramatic acceleration in the second half — and possibly a full take up of Enbridge Inc.’s proposed $2.75-billion at-the-market offering by the end of the year — for the sector to approach last year’s C$7.4 billion in equity issuance.

“Nobody needs cash really, that’s the problem,” said Phil Skolnick, an analyst covering the Canadian oil patch for Eight Capital in New York. The sector is “flush with free cash flow,” he said, which the companies are using to buy back shares rather than issue new stock. This has made investment banking for the energy industry a challenge.

In addition, the Canadian oil patch hasn’t seen the same wave of mergers and acquisitions that’s sweeping through the US, where Exxon Mobil Corp., Chevron Corp., ConocoPhillips Co. and others have all made multi-billion-dollar deals to buy smaller rivals.

“It’s very difficult if the energy companies are just not doing any deals up in Calgary,” Skolnick said.

The drop in oil stock issuance is running counter to an overall uptrend in Toronto financings. Through the end of May, companies on the TSX raised twice as much money — C$6.6 billion — as they did in the first five months of last year, according to data from exchange operator TMX Group. The rebound has been led by the mining sector, which is benefiting from rising gold and copper prices and buoyant share performance. The S&P/TSX Materials Index has been the top performer of the index’s 11 sectors, climbing more than 10%.

But it’s not like energy is struggling. It’s the next best group in the index, with a more than 8% gain in 2024. But oil producers have not issued stock at the same pace as materials companies, and that’s not expected to change.

“They took a disciplined approach a few years ago, and it’s working,” Skolnick said, noting that many Canadian energy names are trading near records while generating “massive amounts of free cash flow.”