Energy transactions decline in Canada

CALGARY Investors have been pushing Canadian energy companies to merge so they can cut costs and combine resources. That isn’t going so well this year.

The value of deals involving Canadian oil, natural gas and pipeline firms slumped 29 per cent to US$45.5 billion in the first seven months of the year, according to data compiled by Bloomberg. Exclude US$22.3 billion in Enbridge Inc. outlays to absorb subsidiaries, and the dip widens to 64 per cent.

Driving the drought is an oil rally that’s emboldened management to stay the course, as well as a lack of

appetite for dilutive share issuances to fund takeovers. The trend is hampering consolidation that observers say is needed to allow Canadian entities to compete with lower-cost shale drillers in the U.S.

“The ability to attack inefficiencies is much greater when there’s one group of people working on an asset rather than two,” said Rafi Tahmazian, who helps manage about $900 million in energy investments at Canoe Financial in Calgary. “That’s just a better way ... where we’re not focused on just growing production, we’re focused on the rate of return.”

Tahmazian lays much of the blame for the decline on Canadian

government policies, such as carbon taxes, that he says make the nation’s energy sector less competitive with rivals in other countries. A shortage of pipeline capacity in Western Canada has also hurt domestic producers because it means they have to sell their crude and gas at discounted prices.

In contrast to the Canadian decline, U.S. deals increased 12 per cent to US$174.8 billion this year through July.

Although crude prices are still shy of the US$100-a-barrel level of 2014, the worst of the slump that saw them dip below US$30 is long gone.