Canadian M&As heat up
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Oil assets regaining interest from global equity players; C$20.5B in deals in ’21
Gary Park for Petroleum News
The latest surge in oil prices has been accompanied in Canada by the reappearance in the oil patch of foreign private equity players.
Cenovus Energy Chief Executive Officer Alex Pourbaix told analysts the activity has prompted his company to take a fresh look at asset sales now that bear markets of recent years have faded.
He said Cenovus asked Husky Energy last year to shelve the planned sale of its retail fuel business in the midst of low crude prices when the two companies were negotiating their C$24 billion merger.
Pourbaix said it was his view that Husky “was trying to sell at what was the very bottom of the market. We’re probably now moving into a much better market for that kind of asset.”
In the current climate, he said Cenovus is “deleveraging very quickly without selling any assets” and is hoping the uptick in oil prices may allow the company to hold the line on a debt of C$8 billion rather than its previously announced C$10 billion.
That prospect allows Cenovus to open the door to new buyers who are taking a fresh look at the Canadian energy sector, he said.
Recent transactions The mood has been bolstered by two recent transactions - one by London-based private equity players, McIntyre Partners and Griffon Partners, to buy the Hangingstone oil sands project with capacity of 12,000 barrels per day, for an undisclosed price, and the other by Whitecap Resources, which acquired Kicking Horse Oil & Gas for C$300 million in shares and cash, to gain 8,000 barrels of oil equivalent per day, which is expected to grow over the next year to 19,000 boe per day.
Those deals came on the heels of ARC Resources’ C$8 billion purchase of Seven Generations Energy and the hostile bid of C$13 billion by Brookfield Infrastructure Partners for Inter Pipeline.
FP Data has estimated 24 M&A energy deals have been proposed or concluded in Canada so far this year for a combined value of C$20.5 billion, compared with C$805 million over the same period of 2020.
Change from a year ago Craig Bryksa, chief executive officer of Crescent Point Energy, agreed with Pourbaix that the buyers’ focus on oil and gas assets has undergone a drastic change from a year ago.
He said that in April 2020 companies were more worried about their overall debt levels and their bank covenants.
“This year we’re focused on cash flow generation and what we’re going to do with that free cash.,” Bryksa said.
He said that if oil prices average US$60 a barrel this year Crescent Point will generate C$600 million, which he expects will initially be allocated to paying down debt.
RBC Capital Markets analysts have scoured the energy sector looking for CEOs who have signaled their companies are open to offers.
Analyst Robert Kwan said management at AltaGas, which has a C$5.9 billion market capitalization, is “prepared to split up the company in the medium term as a means to unlock shareholder value.”
He also said Gibson Energy, valued at C$3.2 billion, has a management team and board of directors who are focused on “shareholder value creation, which could include selling the business.”
Another round of deals is also anticipated in the oil sands as the giant operators Suncor Energy and Canadian Natural Resources continue to buy out their partners.
In a recent report, Scotia Capital analyst Jason Bouvier predicted Suncor will spend up to C$2.5 billion over the next two years to acquire minority stakes in the Fort Hills operation owned by mining giant Teck Resources and France’s Total.
Vancouver-based Teck, having abandoned its planned Frontier oil sands megaproject, has indicated it is ready to bail out of Fort Hills and shift its attention to copper.
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