A flurry of merg­ers in the oil­patch

Patch sees deals worth $10 bil­lion de­spite ad­verse M&A en­vi­ron­ment

The Daily Press (Timmins) - - Busines - GE­OF­FREY MOR­GAN

CAL GARY — De­spite the threat of in­vestor ire, Cana­dian oil and gas com­pa­nies are seiz­ing on merger and ac­qui­si­tion op­por­tu­ni­ties, lured by de­pressed val­u­a­tions of their com­peti­tors.

Cal­gary-based en­ergy sec­tor com­pa­nies struck two sep­a­rate bil­lion-dol­lar deals on Wed­nes­day, bring­ing the to­tal value of deals struck or pro­posed in the oil­patch to over $10 bil­lion in the last weekand-a-half.

“This is ex­actly the right time in the re­source cy­cle to be pur­su­ing this strat­egy,” In­ter­na­tional Petroleum Corp. chair Lukas Lundin said in a re­lease an­nounc­ing his com­pany’s US$1.36-bil­lion ac­qui­si­tion of Cal­gary-based oil­sands pro­ducer Black­Pearl Re­sources Inc. on Wed­nes­day. The deal marks the first ma­jor foray into the oil­sands in since the oil price crash of 2014 by a com­pany that is not al­ready oper­at­ing in the basin.

In­ter­na­tional Petroleum is a pub­licly listed sub­sidiary of Van­cou­ver-based Lundin Group of Com­pa­nies, which has in­ter­ests in min­ing and oil and gas as­sets around the world.

On the same day, Cal­gar­y­based fuel re­tailer Park­land Fuel Corp. an­nounced it would spend $1.57-bil­lion to buy 75 per cent of SOL Ltd., which owns fill-up sta­tions and fuel mar­ket­ing as­sets through­out the Caribbean.

“This is our first foray into the Caribbean,” Park­land pres­i­dent and CEO Bob Espey said in an in­ter­view, adding that the seller had ap­proached Park­land.

“When we looked at the busi­ness, it fit very well with ours,” Espey said, adding there has been a lot of con­sol­i­da­tion in the down­stream fuel-re­tail­ing busi­ness over the last 10 years — and he ex­pects the trend will con­tinue.

Credit rat­ings agen­cies up­graded Park­land Fuel’s rat­ing fol­low­ing the deal, Espey said, not­ing that other oil and gas sec­tor deals, pri­mar­ily on the up­stream side, have led to rat­ings down­grades or share price sell-offs.

Park­land shares jumped 5 per cent to $44.46 each in mid­day trad­ing fol­low­ing the deal an­nounce­ment Wed­nes­day, while In­ter­na­tional Petroleum’s shares fell 12 per cent to $6.70 each on the Toronto Stock Ex­change.

Last week, Pre­ci­sion Drilling Corp. shares dropped sharply after it an­nounced an all-share deal worth roughly $1 bil­lion to buy ri­val Trinidad Drilling Corp., res­cu­ing it from a hos­tile bid by En­sign En­ergy Ser­vices Inc.

Sim­i­larly, Husky En­ergy Inc. shares fell 3 per cent to $20.57 on Oct. 1 after it an­nounced a $6.4-bil­lion hos­tile bid for in­debted oil­sands pro­ducer MEG En­ergy Corp. The shares traded down close to 3 per cent on Wed­nes­day to $20.44 each.

“It just seems like we’re in the kind of en­vi­ron­ment where you stick your head up above the trenches and it gets shot off,” Michael Free­born, CIBC World Mar­kets direc­tor and head of en­ergy in­vest­ment bank­ing, said at a con­fer­ence Wed­nes­day.

Free­born said the ma­jor­ity of re­cent deal an­nounce­ments have been fol­lowed by mas­sive share price drops, which has led some oil and gas com­pa­nies to re­con­sider merg­ers and ac­qui­si­tions.

Cana­dian oil and gas com­pa­nies’ share prices are trad­ing at a huge dis­count rel­a­tive to their U.S. peers, but com­pa­nies that are strik­ing deals to ac­quire their com­peti­tors at de­pressed share prices are be­ing still pun­ished.

“It’s very dif­fi­cult to do M&A in this type of en­vi­ron­ment,” JP Mor­gan man­ag­ing direc­tor, head of Cana­dian nat­u­ral re­sources Dave Har­ri­son agreed.

“If you’re go­ing to do M&A to­day, it’s got to be right in your wheel­house,” Har­ri­son said at Wed­nes­day’s En­ergy Round­table con­fer­ence in Cal­gary. He urged com­pa­nies not to sur­prise in­vestors with deals that don’t fit their as­set base.

It just seems like we’re in the kind of en­vi­ron­ment where you stick your head up above the trenches and it gets shot off.”

Michael Free­born,

CIBC World Mar­kets direc­tor


A dou­ble-hulled tanker sits docked in front of the Burn­aby Re­fin­ery, op­er­ated by Park­land Fuel Corp., in Burn­aby, Bri­tish Co­lum­bia. On Wed­nes­day, Park­land an­nounced it would spend $1.57-bil­lion to buy 75 per cent of SOL Ltd.

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