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Stirring Canadian M&A activity Mid-size Whitecap Resources succeeds with C$855M bid for assets accounting for 5% of Imperial production; analysts see more deals Gary Park For Petroleum News
A move by Whitecap Resources to solidify its place in the ranks of Canada’s mid-size oil and natural gas producers by acquiring Western Canadian properties from Imperial Oil has also helped break a dam of pent-up investor demand.
The C$855 million deal is the latest sign that Canadian-based companies have developed a taste for tight oil and shale gas resource plays and are being welcomed by investors.
Whitecap issued subscription receipts of C$500 million to help finance the transaction and investment industry sources reported that the offer generated orders of C$1 billion within two hours.
Ryan Ferguson Young, a manager at Sayer Energy Advisors, said the response shows that strengthened commodity prices and the view of a rebounding industry is leading to a more positive investor sentiment.
On the same day that Whitecap and Imperial made their announcement, Inter Pipeline issued C$300 million of shares to pay down bank debt and help fund its C$3.2 billion expansion of its oil sands pipeline network in Alberta.
Earlier this year, Canadian Natural Resources locked up a C$3.13 billion deal to acquire Devon Energy’s conventional business in Canada and Baytex Energy announced a C$2.6 billion purchase of Australia’s Aurora Oil & Gas, a major operator in the Texas Eagle Ford play.
Nudging C$7 billion Sayer estimates that petroleum industry mergers and acquisitions in Canada are nudging C$7 billion so far this year, up ten-fold from a year earlier.
Investment banker Peters & Co. is forecasting an increase in M&A activity this year, stimulated by the number of assets on the market as larger producers refocus their operations, while others are eager to take a place in newer areas.
Peters said “one of the most significant drivers for a longer-term increase in M&A activity will be the progression of the numerous LNG projects on the (British Columbia) coast, as we believe there is a significant gap between the resources required to underpin these proposed facilities and the resources currently held by the producers seeking to export natural gas.”
It estimates that total production of 63,000 barrels of oil equivalent per day is on the public market — led by Apache assets — with more being offered privately.
Grant Fagerheim, Whitecap’s chief executive officer, said that if a trend to more stable oil and gas prices can hold firm there “could be more institutional investor demand coming into the overall energy sector.”
On the transaction side “there has been an industry grab for good-quality assets,” he said.
Whitecap will sell some assets Whitecap will help pay for the Imperial purchase by selling off some assets, including stakes in gas plants, oil batteries, compressors and pipelines and 8,700 boe per day of gas-weighted production to Keyera, one of Canada’s largest midstream energy companies, for C$113 million at an average C$57,000 per flowing boe.
Attracted by the high percentage of light oil production, low decline rates and strong cash generation from the Imperial properties, Whitecap made a successful offer after Imperial fell short of its expectations in the fall when it invited proposals for the assets.
Fagerheim said Whitecap will inject more capital than Imperial was prepared to into the assets it retains, notably Cardium formation light oil prospects.
Whitecap said that if the deal closes as expected in May, it will raise its 2014 capital spending to C$307 million from C$255 million and expects its production for this year to grow by 13 percent to 31,600 boe per day, three-quarters of which will be oil and natural gas liquids.
The production being transferred to Whitecap is about 5 percent of Imperial’s overall output, leaving Canada’s third-largest producer, 69.6 percent owned by ExxonMobil, free to concentrate on its high-profile ventures, including the Alberta oil sands, Arctic interests that are dominated by a venture with ExxonMobil and BP to explore in the Beaufort Sea, unconventional resource plays in Alberta and British Columbia and the early evaluation of the WCC LNG project, a joint venture with ExxonMobil to export 30 million metric tons per year over 25 years.
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