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Ripe for the picking in Canada? Mergers and acquisitions set records in first half of year; Sayer Securities put the enterprise value at C$9.9 billion Gary Park Petroleum News Canadian Correspondent
Whatever the measure, merger and acquisition activity in Canada’s oil patch this year has reflected the impact of high energy prices, generating intense interest in what might lie ahead.
Investment banker Crosbie & Co. said the oil and gas sector accounted for more than a quarter of the 451 deals in the first half and about C$18 billion or 35 percent of the transaction value, while Sayer Securities put the enterprise value over the same period at C$9.9 billion, up C$1.1 billion from a year earlier.
Crosbie said the number of deals was the most in more than a decade, topped by Weatherford International’s US$2.3 billion purchase of Precision Drilling’s energy services and international contract drilling units.
The firm also noted that income and royalty trusts were an important driver as they look for ways to offset declining reserves.
Sayer financial analyst Tom Pavic noted that more than one-third of the first-half activity stemmed from the sale of about C$3.6 billion of assets owned by leading independents such as Devon Energy, EnCana, Nexen and Pioneer Natural Resources.
But the pace lagged a long way behind such peak years as 2001 and 2002, when the tallies to the end of June were C$26.3 billion and C$21 billion, respectively.
He said the trusts have been the main buyers of divestiture packages, spending C$4.8 billion on companies and assets.
Pavic calculated the median price paid per barrel of oil equivalent reserves at C$14.80, close to double the acquisition costs just four years ago.
He said continued record price levels for oil should “see more foreign entrants into Alberta’s oil sands projects,” while high prices for conventional oil and natural gas along with a growing number of trusts should result in strong M&A activity through the second half.
That has already surfaced in the C$1.4 billion bid by France’s Total for oil sands start-up Deer Creek Energy, which it has since raised by another C$30 million to match an offer from an unidentified rival.
It was equally a factor in Kinder Morgan’s C$6.9 billion offer for Terasen, the oil and gas utility that is strongly placed to become a major carrier of oil sands production.
Canada’s International Trade Minister Jim Peterson said he will not be at all surprised if more global investors saw “our energy companies as very good investments.”
Daniel Ondrack, a management professor at the University of Toronto, says the most likely targets are companies that are widely tracked on the stock market and companies that have low price-earnings ratios, putting them in a bargain category at a time when any deals are scarce.
The list of frequently-mentioned takeover candidates is dominated by independents EnCana, Canadian Natural Resources, Nexen and Talisman Energy, and two fully integrated companies, Petro-Canada and Husky Energy.
For buyers scouting oil sands prospects, Suncor Energy, Canadian Oil Sands Trust (which owns 36 percent of the 350,000 bpd Syncrude Canada consortium) and Western Oil Sands (a 20 percent partner in Shell Canada’s Athabasca operation) are some of the first names to surface.
Husky always figures on shopping lists and has been courted in recent years by some of China’s state-owned companies.
But Li Ka-shing, who controls 72 percent of Husky through family and corporate interests, told reporters in late August that he is only interested in seeing the company “grow bigger and stronger” and has no desire to shed his own holdings.
He said “business at Husky is quite good,” describing as “decent” husky’s oil reserves and oil sands deposits.
“There is nothing that we can say is forever, but right now … Husky is not for sale,” he said.
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