Juniors ready to pounce on assets being unloaded by new giants

Host of startups emerges in Canada, attracting about C$500 million of private capital this year; investors are willing to ride through a period of low, or no growth

Gary Park

PNA Canadian Correspondent

From the tornado of takeovers in Canada’s oil patch in the past two years, a smaller dust storm is beginning to swirl.

It is being kicked up by junior E&P companies who are ready to seize a windfall of assets sales when newly-merged entities start off-loading non-core properties.

Names such as Cequel Energy Inc., Action Energy Inc., Bulldog Energy Inc., Blue Sky Resources Inc., Progress Energy Ltd., Meota Resources Corp. and Infiniti Resources International Ltd. are surfacing, many of them started and run by former executives of big-name players.

Of the publicly traded companies, the valuation of Cequel has shot up 200 percent so far this year, Meota has climbed almost 60 percent and Progress has gained 45 percent.

For investors it’s a welcome new field after 94 listings against 150 delistings on the Toronto Stock Exchange from 1998 to early 2001.

Good year for startups

Don Nelson, president of Summit Resources Ltd., said large parcels are anticipated this year from Burlington Resources Canada Ltd., Devon Canada Corp., Conoco Canada Resources Ltd. and Anadarko Canada Corp., who are among new breed the U.S.-based energy powerhouses anxious to tap Canada’s potential.

Devon, following US$7.3 billion in takeovers of Mitchell Energy & Development Corp. and Anderson Exploration Ltd., is taking a path that could feed the junior sector.

It has agreed to sell properties in Canada and the U.S. that have the equivalent of about 127 million barrels of reserves for US$953 million in cash to trim debt.

Re-appearance of juniors expected

Calgary-based investment firm Peters & Co. has seen its sub-index of publicly-traded junior producers climb about 50 percent from 3,676 last September, compared with a peak of 6,122 in May 2001. It rates juniors as companies producing 5,000 to 15,000 barrels of oil equivalent per day with a market capitalization of between C$100 million and C$300 million.

Its index of small producers — those with a market cap under C$100 million and output under 5,000 barrels of oil equivalent per day — has also made a gain of about 44 percent since September 2001.

Andrew Boland, an analyst with Peters, said investors who are counting on a period of commodity price uncertainty seem ready to ride out a few months of low to no growth.

Given the depleted ranks of large- and medium-sized Canadian companies, investors have few options but to look for smaller prospects, where about C$500 million of private capital has been injected this year.

However, a spokesman for the Small Explorers and Producers Association of Canada, with more than 400 member companies, said it is still tough for those companies to access equity and debt, forcing some to remain private.

Taking Canada’s energy pulse

But not all is peace and harmony between two countries who lead the world in two-way trade, with energy exports accounting for almost two-thirds of Canada’s oil and gas production while generating C$58 billion in revenues 2001.

The wave of mergers and acquisitions by U.S.-based companies in recent years has stirred anxiety over the loss of Canadian control and decision making in the oil and natural gas sector.

Moves by the U.S. Senate to provide loan guarantees and tax credits for a gas pipeline from Alaska are widely opposed in Canada, where such incentives are viewed as meddling in the marketplace.

Even so, governments and the industry on both sides of the 49th parallel are striving to find common ground and to strengthen continental strategies to avoid turning irritants into outright conflict.