Pumpjacks pump crude oil near Halkirk, Alta., in this file photo.Larry MacDougal/The Canadian Press
It had all the hallmarks of a hot initial public offering. Oil assets at the height of an energy boom. A dividend for retail investors. Reputable private backers.
What has transpired since Northern Blizzard Resources Inc. went public in a $519-million deal in July, 2014, has been anything but stellar.
Two months after the stock started trading, oil prices began to plummet. In the summer of 2015, the company cut its dividend in half.
Northern Blizzard shares are now down 80 per cent from their IPO price, and on Monday, the oil producer slashed its dividend in half – again.
That the shares have struggled is not earth-shattering. So many of Northern Blizzard's peers are in a similar situation.
Yet the stock has fared worse than most, and its performance is almost the polar opposite of Seven Generations Ltd.'s, a Canadian energy company that went public around the same time. What went wrong?
A lot.
At first, investors liked Northern Blizzard's asset mix straddling the Saskatchewan and Alberta border, with a 95-per-cent weighting toward oil.
The company was also expected to grow production and pay a 5-per-cent annual dividend, making it look like the energy "divcos" that were all the rage at the time.
The glaring problem since the IPO has been the collapse of oil prices, which had a particularly strong effect on heavy oil producers, because many of their projects require high prices to be profitable.
But blaming that alone for all the woes would be remiss.
Northern Blizzard has never been able to grow production the way it wanted to, with output from its Plover Lake thermal project running into trouble soon after the public offering, delaying its ramp-up.
By the time management figured out what to do, oil prices were in the dumps, so the company curtailed heavy-oil capital spending.
Northern Blizzard unveiled its 2017 production outlook on Monday, and the 17,100 barrels of oil equivalent per day expected next year is almost 20 per cent lower than what it produced at the end of 2014. However, the new projection was also impacted by asset sales.
Dividend cuts have also hurt, because they tarnish Northern Blizzard in the eyes of retail investors.
The first, in 2015, was designed to buy the company some breathing room.
At the time, oil hedges covered a large portion of its 2015 and 2016 production, which meant revenues could be forecast with a decent amount of certainty.
The struggle now is that the hedges are coming off. And although the company's big private backers, Natural Gas Partners and Riverstone Holdings, take a lot of their dividends in shares, not cash, RBC Dominion Securities analyst Shailender Randhawa in November predicted a dividend cut because being paid in shares amounted to an 8-per-cent projected share dilution, "which is not sustainable long-term."
Lately Northern Blizzard has benefited from stabilizing oil prices, however, the company is at a disadvantage because it is Canadian, and Canadian crude sells at a discount. In an e-mail, chief executive officer John Rooney also wrote that "oil prices stabilizing in the $50 (U.S.) [range] results in good stable cash flow for Northern Blizzard, but obviously not as much cash flow as when oil was at $90."
One of the most surprising aspects of Northern Blizzard's struggle is that two other Canadian energy companies had big IPOs in the same year, and both are faring much better.
PrairieSky Royalty Ltd. is trading much closer to its IPO price today, down about 10 per cent, while Seven Generations Energy Ltd., or 7Gen, is up by 70 per cent.
Just like Northern Blizzard, 7Gen was backed by some of the world's most prominent private-equity players, but it is a liquids-rich natural gas venture in the Montney formation.
In the current energy market, natural gas is much preferred to heavy oil, and investors have fallen in love with the Montney's low-cost assets.
Execution has also mattered. Many companies spend heavily to produce more energy, but 7Gen does it extremely efficiently.
That means the world when oil and gas prices plummet, cutting into margins.