Pipelines run toward oil storage tanks stand at the Enbridge Inc. Cushing storage terminal in Cushing, Okla. in this file photo.Daniel Acker/Bloomberg
Deals are flowing at the pipeline and infrastructure end of the oil industry, marking a return of optimism after a prolonged drought of energy financings.
This week, companies that specialize in processing and transporting oil and natural gas tapped markets for combined proceeds of $2.7-billion, more than half the total amount of equity raised by the entire sector in the three-month stretch ended Sept. 30.
Keyera Corp., Pembina Pipeline Corp. and industry giant Enbridge Inc. are raising money to patch up finances and fund growth as oil markets show signs of lasting improvement following a three-year slump.
The activity is notable because proceeds will help fund big-ticket projects, rather than debt repayment alone. That signals major oil and gas companies are starting to accelerate production after three years of caution, stoking demand for new pipelines and processing gear.
At least one of the deals, a $300-million share sale by Pembina, is likely to be upsized owing to strong demand, a source said. Such financings are an easier sell for investors than similar offerings from oil and gas producers due to the companies' conservative business models that offer more predictable returns, said Robert Mark, portfolio manager at Raymond James Ltd.
"You're typically raising capital for established projects where there's a fairly predictable rate of return, and investors have better clarity on it," he said.
"You don't build a pipeline on spec. You build a pipeline because there's a future demand for that piece of infrastructure."
Crude prices edged higher on Friday, a day after the Organization of Petroleum Exporting Countries, led by Saudi Arabia, agreed with Russia to extend production cuts to the end of 2018 in a bid to tame a global glut. West Texas intermediate oil climbed 1.7 per cent in the session to settle at $58.36 (U.S.).
The extended downturn has battered Alberta's dominant industry and forced even staid infrastructure companies to spend big on consolidation in hopes of trimming costs and preserving dividends.
Last year, Enbridge paid $37-billion (Canadian) in a blockbuster deal to acquire rival Spectra Energy Corp., vastly expanding its North American pipeline business. That was followed earlier this year by Pembina's $9.7-billion deal for Veresen Inc.
Calgary-based Pembina said it would use proceeds from the offering to repay debt. But the company is also boosting spending next year to $1.3-billion, including $400-million for new projects.
On Wednesday, Pembina said its board okayed plans for a proposed liquefied petroleum gas export terminal on British Columbia's coast, as well as expansions to processing plants in the province's Montney exploration region. The company also said it would spend $135-million developing a major liquefied natural gas export plant in Oregon.
Desjardin Capital Markets analyst Justin Bouchard told clients the moves reflect Pembina's new-found scale, which necessitates substantial capital commitments to move the needle on growth.
Enbridge, which transports the bulk of Canada's crude oil exports to the United States, sold $1.5-billion in shares in a private placement to three institutional investors at the same time it highlighted plans to spend $22-billion on major projects through 2020. Its Enbridge Income Fund Holdings Inc. unit raised $500-million.
Keyera sold $429.4-million worth of shares to support new spending, with some of the proceeds targeted to reduce short-term debt. A source said the sale was oversubscribed.
The company is budgeted up to $900-million for growth projects next year. That includes up to $100-million for expansions at its Simonnette gas plant in northwest Alberta, where the company said it has signed 10-year supply agreements with Athabasca Oil Corp. and Murphy Oil Co. Ltd.
With a file from Tim Kiladze