Upstream energy operator, Encana Corp. (ECA) announced the closure of its PrairieSky Royalty Ltd. initial public offering (IPO). The 52 million shares offered in the IPO were priced at $28.00 per share. Encana received gross proceeds of roughly C$1.46 billion.
Canada’s largest IPO in over a decade officially opened business on May 29 and made a superb start. Shares of PrairieSky gained around 32% to close at $37 per share in the Toronto stock exchange, substantially higher than its $28 sale price. Encana shares also gained about 1.5% on the day to close at $23.28.
Encana, which currently has a 60% ownership in PrairieSky, has sanctioned a 30-day option to underwriters for buying an additional 7.8 million shares in case of over-allotment. If the option is fully exercised, the gross proceeds of Encana will increase to about C$1.67 billion while its ownership will come down to 54%.
Encana’s management stated that formation of the new entity, PrairieSky, is in accordance with the company’s strategy that was announced last November. PrairieSky is expected to capitalize on the untapped potential in Encana’s royalty business.
As Encana is Canada’s largest natural gas producer, its profits naturally suffered due to a fall in natural gas prices in the recent past. This prompted the company to restructure its asset base with a focus on oil-producing resources. The spin-off plan is in accordance with this transformation, as the properties in Western Canada primarily produce natural gas.
Based in Calgary, Alberta, Encana is the second largest gas producer in North America and has a highly competitive land and resource position in several of the region's most promising shale and tight gas resource plays. This provides the company with a low risk, long-life and sustainable growth profile.
Currently, Encana carries a Zacks Rank #1 (Strong Buy), implying that it is expected to significantly outperform the broader U.S. equity market over the next one to three months.
Meanwhile, one could also consider other Zacks Rank #1 players in the same industry like Athlon Energy Inc. (ATHL), Ultra Petroleum Corp. (UPL) and RSP Permian, Inc. (RSPP).
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