Lexpert Special Editions

8 | Financing Energy Projects tal where possible, says Shannon Gangl, a partner at Burnet, Duckworth & Palmer LLP in Calgary. Their balance sheets are generally in good shape and many have been using their bank lines to finance their requirements. "What we're starting to see is either they're not financing or they're looking at different financing methods," says Gangl, who helped advise Progress Energy Resources Corp. on its $5.2-billion acquisition by Malaysia's PETRONAS. "There have been hardly any traditional equity financings in energy. "The first half of 2013 had the lowest number of deals and deal values since the first quarter of 2008." Companies are issuing bonds or debentures instead of stock, accessing debt markets instead of equity. In the first part of 2013, for example, Southern Pacific Resources Corp. raised $260 million in a debt offering; Canadian Energy Services & Technology Corp. raised $225 million; Seven Generations Energy Ltd. $400 million; and Teine Energy Ltd. $300 million. Smaller companies, or those that don't want to raise quite as much capital, have been using preferred share offerings — which are considered to be like debt in that they pay a fixed rate like a bond. Birchcliff Energy Ltd. is one company that went that route, with a $50-million offering in June. Another option – at least for the country's large-cap oil and gas companies – is doing a deal with a strategic investor. Canadian pension funds such as the Canada Pension Plan, the Caisse de dépôt et placement du Québec and the Ontario Teachers' Pension Plan Board, which have traditionally focused their investments on real estate and infrastructure, are becoming a lot more active in the energy field. In fact, the Caisse and Teachers' both recently formed natural resources investment teams to focus on potential deals. Gangl says companies are also raising capital by selling off non-core assets. "There are a fair number of divestiture packages out there, a lot of companies have announced dispositions." Glenn Cameron, a corporate and energy partner at Stikeman Elliott LLP, calls traditional equity markets for M&A and new financings "disastrous" in the first half of the year. "It's been very, very difficult for energy companies to access capital markets these days. It's been a real struggle." There has also been a marked change in the business model for early stage energy companies, he says. The tried and true model of raising $5 million to $10 million to buy land at a Crown sale, doing some drilling to create value, cashing out and retiring for six months then starting all over again is not as popular anymore. Instead, most energy plays these days involve shale oil and gas finds, and are focused more on the engineering needed to bring a potential reserve into production rather than on exploration. "That is significantly more capital intensive," says Cameron, a senior lawyer in Calgary's oil patch. "With expensive horizontal drilling and all the rest, what you need is closer to $200 million to $300 million to exploit the value in these plays." Companies looking for that kind of money have been increasingly turning to Canadian and US private equity funds, which have become an important new source of capital. "If you've got the right management team, people who've been successful and shown they can create value – the right management and a compelling story – you have the ability to attract investment," says Cameron. "There's a lot of that going on and, of course, there's a huge amount of money available. But it's very fussy about where it goes so only the best situations, the best stories, are getting underwritten." Many private equity funds, he says, "as Lexpert®Ranked Lawyers Coburn, F.F. (Rick) Borden Ladner Gervais LLP (416) 367-6038 rcoburn@blg.com Craig, Gordon M. Lawson Lundell LLP (604) 631-9155 gcraig@ lawsonlundell.com Mr. Coburn's land use planning and environmental law practice emphasizes the environmental aspects of brownfields development, corporate acquisitions and financing. He also acts for clients on regulatory matters, including before the OMB and the ERT. Mr. Craig's commercial practice focuses on the energy sector in Western Canada. He represents a major electric utility and a western North American electricity marketer in connection with varied commercial transactions. Crowther, Douglas E. Dentons Canada LLP (403) 268-6821 douglas.crowther@ dentons.com Mr. Crowther leads the Dentons Canada national Energy Industry Team. His practice includes pipeline, electricity and other facility approvals, tolls/tariffs and utility rates. He appears before the NEB, the Alberta Utilities Commission and other energy regulators. Cusano, Luigi A. (Lou) Torys LLP (403) 776-3797 lcusano@torys.com Mr. Cusano's practice focuses on administrative, regulatory and environmental law and commercial litigation in the energy sector, including regulatory work in the electricity and oil and gas sectors. Dahme, Harry J. Gowling Lafleur Henderson LLP (416) 862-4300 harry.dahme@ gowlings.com Mr. Dahme has expertise in the full range of environmental law services, with particular expertise in renewable energy approvals, environmental assessment and environmental approvals, water and wastewater, brownfield remediation and waste management. Davies, Donald G. Norton Rose Fulbright Canada LLP (403) 267-8183 don.davies@ nortonrosefulbright. com Mr. Davies's energy practice focuses on regulatory and litigation matters. His clients include oil and gas producers, pipelines, utilities and industry groups. He appears before the NEB and provincial regulators including the AER and the AUC.

• Cover