‘More capital being thrown’ at oilpatch

“The capital markets are demonstrating a willingness to finance companies to do acquisitions.

“There’s still a bifurcation between the teams the capital markets will support and the other teams, which are kind of stuck in the mud,” he notes.

“But for Whitecap, that deal went very well. We had been waiting for the Imperial assets to be bought and there were a few potential buyers including ARC Resources and Vermillion. With a half-billion dollar financing I’m sure there was some angst at Whitecap about whether they’d be able to get it done. But it just flew off the shelf.”

Tom Pavic, vice-president of Calgary’s Sayer Energy Advisors, which tracks oilpatch M&A activity, says the data so far this year points to a clear pickup in oilpatch dealmaking activity.

“We’re up year-over-year with regard to M&A transactions. Looking back to this time last year, during the first quarter we had under $1 billion worth of deals. This year, we’ve seen three times that much,” he says.

“There’s more capital being thrown at the industry, and most of that capital is being directed toward — for lack of a better term — A-plus management teams that have a proven track record, such as Whitecap, Surge Energy, Kelt Exploration and Tourmaline,” he adds.

“Another key thing was Canadian Natural Resources’ big deal to acquire Devon Energy’s assets. I think Canadian Natural’s decision to step up and do that transaction has had a positive effect on the rest of the industry. They made a strong bet on natural gas with that transaction.”

Although the first quarter is still not complete, Pavic says the industry is on track to match the 34 M&A deals above $5 million that were completed in the last quarter of 2013. That’s about 50 per cent higher than the 22 deals announced in the first quarter of last year.

Not everyone is convinced that 2014 will be a breakout year for oil and gas deals, however. Josef Schachter, president of Calgary’s Schachter Asset Management, says global oil production is set to surpass demand this year, and that’s likely to lead to a sharp drop in oil prices within three to six months.

“I think we’ll see the low $80s US and maybe even into the $70s on oil prices,” he says.

“And if you get low $80s pricing for oil that kills your deal flow.”