In the face of recent changes in commodity pricing, unpredictable equity capital markets, and the growing importance of scale in Canadian energy development, many leading energy management teams are seriously considering private equity funding alternatives, including the equity line of credit (ELOC).
Stikeman Elliott has market-leading expertise in this area and we have prepared an overview paper entitled The Oil & Gas Equity Line of Credit which reviews:
- the key commercial terms of an ELOC
- a market survey of ELOC economic returns in Canada
- frequently asked questions about ELOC funding
- the 41 private equity energy sponsors that have been active in Canada in recent years
Our objective in preparing this publication is to support Canadian managers in evaluating, accessing and implementing this source of funding.
Key Terms of the ELOC
The key terms of the ELOC include specifying the economic formula for the sharing of the future returns between the sponsor and management and the governance rights of the sponsor, including the operation of the board, controls over key decisions and the power to change the management team. We have summarized these approaches and identified all of the key commercial issues that managers should consider. A sample form of letter of intent for an ELOC is also available on request in order to help shape management's analysis of deal terms.
Potential Returns of Management Teams
The paper analyzes the economic terms of a representative sample of Canadian energy ELOCs (established between 2006 and 2014) to determine a range of potential returns on equity and incentive promotes for teams, based on different growth outcomes.
Frequently Asked Questions
The Oil & Gas Equity Line of Credit answers key questions faced by management teams considering an ELOC, including:
- How do I connect with sponsors?
- Should I assemble a board?
- Do I need to come to sponsors with an asset?
- Can I get support for G&A while I look for an asset?
Potential Sponsors
The paper describes the investment focus and Canadian activity of 41 sponsors that have been active in Canada.
We have relationships, or directly work with, all of the sponsors described in The Oil & Gas Equity Line of Credit, and we would be pleased to make introductions to funds for qualified management teams.
Private Equity Funding Reception
Stikeman Elliott is hosting a reception at 4:30 pm on Thursday, June 25 to discuss this paper and other observations from the firm's lawyers regarding the energy private equity market. Oil & gas managers considering private equity funding are invited to attend.
For a copy of The Oil & Gas Equity Line of Credit or to register for the June 25 reception, please contact Stikeman Elliott LLP at rsvp@stikeman.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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