Canadian E&P flow-through financings were higher-in number of deals and value-in the first nine months of 2006, compared with the similar period in 2005.

These financings totaled C$996 million for the first three quarters of 2006, an increase of almost 100% from the C$503 million in the comparable period in 2005, according to Calgary-based Sayer Energy Advisors vice president Tom Pavic. There were 169 flow-through issues, compared with 123 in the first nine months of 2005, he adds.

The financings were 17% of the total C$5.7 billion of equity issued by Canadian E&P companies in the three quarters, compared with 10% of the total C$5.1 billion raised in that period in 2005.

Pavic says, "Flow-through financings greater than C$5 million in size represented 82% (C$812 million) of the 2006 issues, compared with 76% (C$382 million) of the 2005 financings."

The top five issuers received an average premium of 27% in 2006 and 23% in 2005. Pavic says, "Another interesting factor, which has followed along with the increased value of flow-through financings in the first three quarters of 2006, is the type of deductions associated with the flow-through shares being issued by E&P companies. A number of E&P companies in 2006 have been issuing flow-through shares for Canadian development expenses."

The use of deductions, while not new, is becoming more common, he says. Cyries Energy Inc. raised C$23 million in July in flow-through money for C$16 million of exploration expenses and C$7 million for development expenses. Investors who acquired the exploration-expense shares are able to write off 100% of their investment, while development-expense shares can only be written off 30% on an annual basis.

In the Cyries flow-through financing, the average premium for the exploration- expense shares was 30%, while it was 15% for the development-expense shares, Pavic explains.

The fourth quarter was expected to generate more deals, while investors concentrated on tax planning and when most flow-through shares are sold. In 2005, the last quarter accounted for 51% of the year's issues, and 52% in 2004.

Pavic says, "If the trend continues into the final three months of 2006, there will be more than C$1 billion in new issues available, leading to possibly more than C$2 billion of flow-through money raised during 2006, which would be a new record for the Canadian oil and natural gas industry."