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Canada poised for strong M&A year
Gary Park For Petroleum News
On the heels of a blockbuster year, mergers and acquisitions in Canada’s energy sector are forecast to enjoy at least a repeat performance in 2010.
Led by the US$18.4 billion Suncor Energy takeover of Petro-Canada, Canada racked up US$51.9 billion in deal making in 2009, up 19 percent from 2008, reports Mergermarket, which follows global M&A activity.
The report said market consolidation accounted for 84 percent of the deals between Canadian companies.
It is counting on shale gas remaining a hot target.
Calgary-based Sayer Energy Advisors delivered a less bullish report on 2009, rating the enterprise value of energy M&As at C$47 billion, assigning C$20 billion to the Suncor-Petro-Canada deal, which it said put 2009 on a par with 2008.
Sayer analyst Crystal Holdershaw is predicting an uptick in 2010 value because of several large asset packages hitting the street already this year.
“There will be more consolidation throughout the industry,” she said, which more companies subscribing to the notion that bigger is better “if they want to raise money and survive.”
Suncor divestitures Suncor expects to make divestitures of C$2 billion-C$4 billion in the next year or two — some of it involving U.S. Rockies’ gas assets inherited from Petro-Canada — as it lowers company gas output to 450 million-500 million cubic feet per day from its current 750 million cubic feet per day.
Investor relations manager John Rogers, explaining Suncor’s haste to unload conventional assets, told a BMO Capital markets conference in New York earlier in January that the company is “all about oil sands.”
Talisman Energy has assets producing almost 2,800 barrels of oil equivalent per day on the block; PetroBakken Energy is looking for bids on 6,750 boe per day; and Cenovus Energy, the oil sands spinoff from EnCana, said it plans to sell a significant amount of assets in 2010.
Holdershaw said the big question now is who is capable of buying such packages.
In the absence of domestic players with the capital backing, she suggested international companies will likely be among the buyers.
She forecast that corporate transactions, which accounted for about 80 percent of M&A deals in 2009, will decline as the “focus shifts back to larger property transactions.”
As well, she predicted that the interest among big international companies in gas packages might be piqued.
Smaller packages might be more attractive to more players Because of the appetite for smaller packages, Holdershaw said it “might be prudent” for majors to consider breaking up their packages to draw more interest from a greater number of players.
Holdershaw said she did not expect any improvement in the limited access to capital for both public and private junior companies, especially now that banks — who held the credit lines for their clients in 2009 — are losing hope that gas prices will improve and reserve values will increase.
She said gas-weighted companies “may be making enough money to keep the lights on, but not enough to replace the depleted reserves. Banks will then force some companies to sell their assets or merge with other companies in order to get loans repaid.”
For now, however, she said not many companies are known to be for sale or to be weighing strategic alternatives to maximize shareholder value, but it is likely a number of companies are “quietly exploring” alternatives in order to survive.
More companies in trouble The number of companies seeking creditor protection or entering receivership will continue to build in 2010, especially among those “that hung on by a thread in 2009.”
If forecasts by the Bank of Canada and Finance Minister Jim Flaherty are accurate and interest rates rise in 2010 that will negatively impact M&A prices, Holdershaw said.
Interest should remain strong in resource plays such as Montney and Horn River in British Columbia, Bakken, Kindersley Viking and Lower Shaunavon in Saskatchewan and Pembina Cardium and Duvernay in Alberta, she said.
The report predicts prices will be greater than C$50,000 per boe for oil-weighted transactions, but only C$20,000-C$30,000 per boe for gas-weighted transactions and, with the large amount of gas assets now up for sale, larger deals could skew the median acquisition price.
The one possible upside for gas assets could be an overhaul of the Alberta government’s gas royalty structure, Holdershaw said.
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