To better serve our many subscribers that are working from home during this time, we are offering digital issues of North American Oil and Gas Pipelines. Please Subscribe to ensure delivery of future digital editions. Thank you and be well.

Market Watch

0

market-watchMega-Deals, Clamp-Down Tint Canadian Markets
A Look at the 2013 Canadian Oil and Gas Outlook

By Hana Askren

The Canadian oil and gas industry has seen some interesting activity, with two cross-border mega-deals followed by a regulatory clamp-down on future similar deals. The “Canadian Oil & Gas 2013 Outlook” recently published by mergermarket and Torys LLP asked a variety of questions of respondents about this dynamic region and industry.

Catalysts for deals include access to capital, growth plans, commodity price forecasts and global developments.

/*** Advertisement ***/

Regulatory and Cross Border
In spite of regulatory developments preventing foreign state-owned enterprises from making acquisitions in Canada, respondents had a large degree of confidence in the mergers and acquisitions (M&A) market. The vast majority, about 75 percent, did not expect regulatory risk to hinder deals in the coming year. More than 80 percent of them believed that companies based in Asia-Pacific will be highly acquisitive over the next 12 months, so deal fervor doesn’t seem to have cooled in the minds of these industry participants.

This news service has reported that foreign state-owned companies are likely to pursue joint ventures (JVs) on the same scale as they had previously pursued acquisitions. It has also reported extensively on the Canadian need for capital to develop its oil sands and other unconventional resource types; respondents seem to expect the deals to flow in as well.

Respondents were also enthusiastic about Canadian companies’ interest in Latin American, North American and Middle East/African assets. They cited challenges such as nationalization risk, local content requirements and mismatched valuation expectations as the biggest barriers to doing outbound international deals.

The largest two deals in this area were Petronas’ $5 billion (USD) acquisition of Progress Energy and CNOOC’s $17.6 billion acquisition of Nexen. However, neither of those deals would now be approved under Canada’s new SOE regulations, so it is up for debate where the next cross-border deals in Canada will come from and what they could look like.

Cross-border interest is expected to be highest in oil sands and oil-weighted assets, respectively, with natural gas and offshore resources close behind. Canadian natural gas companies could see the most cross-border M&A next year, according to 55 percent of participants.

Strategy
Acquisitions and JVs or farm-in partnerships have always been a staple of the industry’s growth. Acquisitions are more highly favored, with 71 percent of respondents saying they preferred this method over farm-ins; however, industry changes could be afoot with the new regulations heavily favoring JVs over outright acquisitions.

Senior exploration and production (E&P) companies should be the most acquisitive, respondents said. They ranked senior E&P companies as two thirds more likely than junior E&P companies or service companies to make buys. And when the tables turn, about half of respondents believed junior E&Ps would be targeted, with the remainder evenly split between services and senior E&Ps.

While respondents pegged juniors as focusing equally on organic growth, improving balance sheets, and growth through acquisitions and partnerships, a significant minority, about 14 percent, believed they would focus their efforts on a sale or merger. It looks like seniors will be buying juniors as the overwhelming majority believed that senior E&P companies would primarily focus on acquisitions and partnerships.

Commodity Price Stability
Oil and gas dealmakers watch commodity prices closely; though prices need not be particularly high or low to encourage M&A, they need only be stable and predictable. Around 65 percent of respondents had a pro-M&A outlook as they believed oil prices would remain stable or decline as the United States ramps up oil production. If prices stay stable, companies will have an easier time coming to an agreement on valuation; if they decline, a challenging environment could push them into deal territory. Thus 85 percent believed that commodity prices will be a strong catalyst for M&A activity.

As for natural gas, 95 percent believed prices would either stay stable or increase over the next year. Catalysts in both oil and gas should portend a robust deal-making year. On the other hand, 54 percent said that prices could be somewhat volatile, which could prove to be a confounding factor.

Private equity
The Canadian private equity sector is small but growing, with $1.5 billion in publicly announced deals last year. It appears to be following private equity’s typical path, with investments weighted toward more predictable conventional oil and gas exploration and energy services. Participants predicted that 39 percent of private equity activity will be concentrated in the senior exploration and production sector, with 24 percent predicting it will be concentrated in services. In terms of size, more predicted private equity deals in the $500 million to $1 billion range, but a significant minority believed private equity would focus on the $1 billion and up size range.

Institutional investors are also expected to increase their interest and investment in Canadian oil and gas, with 61 percent of respondents saying that institutional investors will invest more in oil and gas this year. Almost 50 percent believed institutional investors would focus on senior E&P, while around 30 percent thought they would focus on trusts.

For a full version of the report, visit the publications section
of www.mergermarketgroup.com.

Hana Askren is deputy editor, Global Energy Sector Head, for mergermarket, a provider of intelligence and analysis on corporate strategy worldwide.

Share.

Comments are closed.

Copyright Benjamin Media 2018