Disappointments from Source Energy’s IPO

Source Energy Services is Canada’s largest extractor and producer of fracking sand. The sand is then used in the hydraulic fracturing process where extraction companies blast water, sand, and chemicals through channels beneath the ground so as to extract hydrocarbons. These can then be filtered to obtain products such as propane and other gases.

Further, the company offers transport services for the sand by use of its 100 rail cars, thereby providing clientele with direct access to its product. Direct delivery decreases transportation costs and dependency on the supply chain and has therefore gathered the company more clientele. The company has been in business for over ten years and has its headquarters in Calgary, Alberta. Apart from this office, the firm operates in various locations including British Columbia, Wisconsin, and Saskatchewan.

Source Energy held its Initial Public Offering on April 13th in a move that had Canada see its largest energy firm issuance since 2014. During its regulatory filing, the company stated that it planned to sell its stock in the range of $17 – $20. However, disappointment filled members of the firm’s team after it ended up selling units of its common stock at $10.50 each. The company sold 16.6 million shares which totaled to a revenue of $175 million. Previous targets, however, had hoped that the firm would raise as much as $300 million from its offering. The steep decline in price range was as a result of sudden decreases in oil pricing in Canada.

Underwriters for this company’s release included Bank of Nova Scotia, Morgan Stanley and Bank of Montreal. The bookkeepers have been provided with an additional 2.5 million shares as an overallotment option running 30 days. The last significant issuance in the Toronto Stock Exchange for an energy company was two and a half years ago when Seven Generations Energy Limited went public. The release raised a total of $932 million and occurred just before oil prices began fluctuating across global markets.

On its first day on trading floors, Source Energy’s stock had its value increase by as much as two percent during its high. However, the shares closed the day at the same price as during their issuance signaling little after-market activity.

Despite the dismal performance during its issuance, things might not be cut and dry for the firm backed by TriWest Capital Partners. The company’s prospects could significantly improve as a result of higher demand for fracking sand as well as the efficiency in delivery. Rising oil prices in North America have encouraged mining companies to increase their operations. As such, there will be a greater need for fracking sand to enable more extraction processes to occur.

Apart from the increased activity in already-established wells, the number of rigs overall has also increased. In the United States and Canada combined, the number of working oil rigs has more than doubled in recent times. This means that Source Energy has a wider number of potential clients than it previously did. Further, mining corporations are using more fracking sand in their wells than in previous operations. This has led to the rise of the product’s price to about $30, which is a 50 percent increment.

Perhaps Source Energy could still pull off an after-market turnaround. For now, however, the firm continues to observe the state of oil prices on the global scene.