Canada has ‘scared off ’ oilsands investors
Merger and acquisition activity in energy sector dominated by conventional oil and gas deals
Conventional oil and gas deals are dominating merger and acquisition activity in the Canadian energy sector, as foreign investors remain wary of dipping their toes in oilsands assets, an industry expert said at an M&A event in Toronto on Tuesday.
“Five years ago, the oilsands had the greatest scope for non-Canadian investments in Canada. That’s changed dramatically,” said William Quinn, head of merger and acquisitions at TD Securities.
“It hurt some of the junior companies in the oilsands space.”
Osum Oil Sands Corp. picked up Royal Dutch Shell’s oilsands assets for $325 million earlier this month, but foreign state-owned enterprises are still unwelcome after the federal government imposed stricter rules on majority ownership in the oilsands.
“We have scared off a number of foreign investors, and as a result we have had very few oilsands deals in the past couple of years,” Quinn noted.
“Contrast that with the conventional oil and gas business in the first half of the year on better commodity prices.”
Canadian natural gas prices have settled comfortably above $4 per MBtu year-to-date, after spending the last two years languishing at about $2 to $3 per million British thermal units.
Similarly, Canadian heavy crude oil prices have shot up by about 8.5 per cent this year with stable spreads against the American oil benchmark.
The favourable commodity environment and surplus of assets on sale helped the much beaten-up conventional oil and gas sector roar back to life with a string of deals this year.
Conventional player Whitecap Resources picked up CanEra Energy for $1.1 billion, while Surge Energy bought Longview Oil for $344 million.
The Canadian oil, gas and consumable fuels sector has already seen 60 deals worth $22 billion yearto-date, compared with $6 billion in 2013, according to FP Infomart data. The industry has already seen seven deals worth $1 billion or more, compared with just two last year, according to FP data.
Not surprisingly, the industry is more upbeat despite the trickle of oilsands deals, with phones ringing a lot more these days in M&A bankers and lawyers’ offices.
“I am cautiously optimistic,” said Jeffrey Singer, a partner at Stikeman Elliott LLP, noting that he has seen an uptick in unsolicited calls from his clients.
“The biggest trend I have seen over the past six months is there seems to be a lot more interest — especially in energy, mining and commodities generally from abroad.”
“It is a more constructive environment,” Quinn added. “We have good equity and credit markets and hopefully an improvement in the U.S. economy.
“Some stabilization in commodity prices has also helped, and the (lower) Canadian dollar has favoured non-Canadian investors.”
After being depressed for some time, the Canadian energy sector also offers better value than its U.S. counterparts, leading to a surge of investments in the energy sector.
Still, the industry is not ignoring the energy-infrastructure bottlenecks that continue to hinder its growth. There is no decision on TransCanada’s Keystone XL pipeline, and Enbridge’s Northern Gateway remains mired in controversy despite conditional approval from the federal government earlier this month.
“The industry is more confident that the issues will be resolved down the road,” Quinn said. “Part of that is increased rail capacity and the determination by the Canadian government to approve pipelines.
“But I don’t think anybody is dismissing the difficulty of getting all of the projects completed.”