Fireweed gears up for IPO drive

Asset purchases, liabilities gathered

This week, the road show for the planned $40 million initial public offering by Fireweed Energy, a recently formed junior oil and natural gas company, got underway.

The event caps a busy period for Fireweed’s core management team: Nearly $17 million of equity has been raised and assets have been purchased. Now it’s time for the public to be offered an interest. And given Fireweed’s development, potential public shareholders have been given considerable reading material including 20 pages devoted to risk factors.

For instance, between Dec. 27 and April 12, the private Fireweed issued shares in the $2-to-$5 range, though in the latter deal (done last March in a transaction with Predator Oil BC) the company didn’t receive any “cash proceeds.” In addition, some of the shares issues issued to Predator aren’t permanent equity.

Fireweed, which previously filed a preliminary prospectus last March, intends to sell shares in the $4.50to-$5.50 range. (Some of the shares issued to Predator may be cancelled if the IPO shares are sold above $5.) Fireweed withdrew its original preliminary long form prospectus on July 27.

In addition to the nonpermanence of some of the equity, the recent transactions section of the preliminary prospectus details Fireweed’s history.

A convenient start date is Jan. 31 when Predator bought the major assets “from an unrelated third party” for $6 million. The “effective date” of the purchase was Jan 31. (While the seller wasn’t disclosed in the prospectus it was Penn West Petroleum.)

One month later Fireweed purchased the “major assets” from Predator for “$30 million, pursuant to the acquisition agreement effective Feb. 28 2017.” Predator also purchased minor assets from Penn West which it sold to Tidewater Midstream and Infrastructure for $10 million and to an arm’s-length third party for $5 million.

In other words, in a short period of time, it seems that $45 million of value has been created from a $6 million asset purchase. National Bank and Cormark Securities are the lead underwriters.

So what gives? One possible explanation is that when Predator bought the major assets it also assumed a $105 million liability for asset retirement obligations. But it then sold those assets to Fireweed free of such liabilities.

That $105 million value, assessed by the B.C. Oil & Gas Commission, represents the costs associated with retiring a long-lived asset and reclaiming the land. But the exact status of that liability seems unclear. The prospectus said while the assets have been transferred, the associated well licences are currently held in trust by Penn West, “pending the determination of any bond requirement, if any.”

Given the way Fireweed was formed there is considerable overlap among its significant shareholders. For instance, Joel A. MacLeod, a Firewood director owns 49 per cent of the privately owned Predator Oil BC, while Stephen J. Holyoake, Firewood’s chief executive, owns 17.8 per cent of Predator. The prospectus also shows Predator Oil BC owns 32.65 per cent of Fireweed, while MacLeod has a 3.40 per cent interest, which rises substantially when the three million shares held by Predator Oil BC are included.

The publicly listed Tidewater Midstream and Infrastructure is also in the loop, given that it bought $10 million of minor assets from Predator in March. MacLeod is the company’s chief executive officer. Tidewater devoted much attention to that purchase when it released its 2016 financials in March.

Given Predator/Tidewater’s related party status, Tidewater formed an “independent special committee,” which determined the acquisition was in Tidewater’s “best interests.” Tidewater’s board then approved the acquisition.

Calls to Fireweed and Tidewater seeking a comment weren’t returned.