(Repeats for wider distribution; in U.S. dollars unless noted)
By Scott Haggett
CALGARY, Alberta, July 1 Mergers and
acquisitions in Canada's energy sector have rebounded from a
dull 2013 and look poised for a further pickup, driven by the
country's rapidly developing shale oil and gas properties rather
than its better known oil sands.
Interest in the sector was renewed after a cold winter
boosted gas demand and as Middle East unrest hikes oil prices. A
longer-term slide in the Canadian dollar that boosted producer
profits has only reinforced the trend.
"In the last little while we've had a very big boom in the
commodities, a boom in expectations and a boom in liquidity,"
including easy access to capital markets and debt financing,
said Dan Barclay, head of BMO Capital Markets' Canadian mergers
and acquisitions group.
"What comes out of that is M&A" - mergers and acquisitions,
he added, predicting more this year.
Canada's oil and gas sector saw an acquisition boom in 2012,
driven by investments from state-owned companies that culminated
with CNOOC Ltd's $15.1 billion purchase of Nexen Inc.
A worried federal government cleared that deal, but slapped
restrictions on foreign ownership of the country's oil sands,
which cooled buyers' interest, as did concerns about the fate of
TransCanada Corp's stalled Keystone XL pipeline
In 2013 corporate acquisitions totaled just $12.4 billion,
down nearly 80 percent from the previous year, according to
Thomson Reuters data.
There are some concerns that rising stock prices may
dissuade some potential buyers, but six months into 2014, merger
activity of about $15 billion has already topped last year's
total. Major deals include the $2.8 billion purchase of much of
Devon Energy Corp's Canadian natural gas properties by
Canadian Natural Resources Ltd and Encana Corp's
$1.9 billion sale of Western Canadian exploration lands
to private equity interests.
MORE FOCUSED DEALS
The current round of acquisition activity has become more
focused compared with prior years, with buyers looking for
targets operating in very specific geographic regions.
"We see companies that we jokingly refer to as 'having the
right postal code'," said Les Stelmach, a portfolio manager with
Franklin Bissett Investment Management.
"Their land position is very good, within a very active part
of the Western Canadian sedimentary basin, and they could
probably do a certain amount of development on their own, but
the pace of that could be vastly accelerated in the hands of
someone else," he said.
He pointed to companies operating in Western Canada's
premier shale fields, where the fracking technology that has
revolutionized U.S. oil and gas production has also uncovered
In Canada, such fields include Montney region that runs from
western Alberta and northeastern British Columbia, and Alberta's
burgeoning Duvernay field.
Painted Pony Petroleum Ltd, which holds nearly
120,000 acres of properties in the Montney region, has roughly
doubled its stock price since the start of the year. Gas
producer Birchcliff Energy Ltd's stock is up 94 percent
over the same period and Crew Energy Inc has gained 73
percent since the end of 2013.
Some analysts think the rise in stock prices has more to do
with strong commodities than potential takeovers, and that
potential acquirers might wait.
"(Commodity) prices have been moving up, especially with
what's been going on in the Middle East," said David McColl, an
analyst with Morningstar. "I think (buyers) would rather strike
in a softer climate than right now."
Still, some see the return of U.S. companies that abandoned
much of their Canadian investments over the past few years as
oil and gas prices softened. The new lures are massive reserves
of Canadian shale fields and the potential demand boost offered
by liquefied natural-gas (LNG) projects.
The possibility that one or more of the 15 liquefied
natural-gas plants planned for British Columbia could be built
has attracted buyer interest, particularly after Exxon Mobil
Corp and Imperial Oil Ltd paid C$3.1 billion
($2.9 billion) for Celtic Exploration Ltd in early 2013. The two
companies are now planning an LNG plant of their own after
acquiring Celtic's shale properties in Western Canada.
"I think the next wave of guys that are going to move into
Canada are going to be the large intermediate-sized U.S.
players," said Sonny Mottahed, chief executive of Black Spruce
Merchant Capital, which finances acquisitions. "Some of those
have come and gone already," he said, naming, as a possible
example, Anadarko Petroleum Corp, which sold off the
majority of its Canadian assets several years ago. "A lot of it
is going to be fueled by the drive to be part of the LNG process
here," Mottahed added.
Hess Corp, which has been shedding oil, gas and other
assets it no longer considers central to its operations in order
to concentrate on shale production, could be another, he said.
Hess and Anadarko did not immediately respond to requests for
While the appetite for shale properties strengthens, little
activity is expected in what had been the country's most
attractive resource, the oil sands.
The 170-billion barrel oil-sands region of northern Alberta
is the world's third largest crude reserve behind Venezuela and
Saudi Arabia. But the restrictions placed on investments by
state-owned companies by Canada's government limit them to
minority stakes on oil sands projects. Opposition from
environmental groups has also dampened interest in the resource,
even as concerns about adequate pipeline space fade on growing
crude-by-rail volumes and proposed new export lines.
"The oil sands are probably the one challenging (sector),"
BMO's Barclay says. "There are a couple of headwinds against
that business overall. The first is really global perception ...
it's not viewed as a favorable investment in lots of places."
($1 = 1.0667 Canadian Dollars)
(Editing by Jeffrey Hodgson and Peter Henderson)