Oilsands firms in solid spot for U.s.-style megadeals: BMO
However, supply isn’t a factor like it is down south
A U.s.-style megadeal is possible in the oilsands, though the pressures that pushed Exxonmobil Corp. and Chevron Corp. to pursue large takeovers aren’t as strong north of the border, says Bank of Montreal’s top energy banker.
Investors would likely back mergers between major Canadian energy producers that increased scale and improved cost efficiencies — and Canadian firms are in a position to do such deals, said Brad Wells, head of energy at BMO Capital Markets.
But the need to add drilling inventory that helped drive Exxon into its US$60 billion offer to buy Pioneer Natural Resources Co. in October and Chevron to pursue a US$53 billion acquisition of Hess Corp. isn’t a factor in Canada, where oilsands firms are sitting on decades of supply, he said in an interview.
The overall health of Canadian companies reduces the impetus to transact and allows them to be opportunistic, making it difficult to predict when such a deal may happen, he said.
“It all comes down to what it looks like: the economics, the strategic rationale, the pro forma business and balance sheet, the price being paid,” Wells said.
Smaller deals already have been happening in Canada. BMO advised Crescent Point Energy Corp. on its $2.05 billion acquisition of Hammerhead Energy Inc. in December. The bank is also advising Enerplus Corp. on a US$3.57 billion takeover offer by U.S. driller Chord Energy Corp., announced in February.
Wells said he’s seeing an uptick in interest from U.S. buyers in the past year, particularly private firms. The banker spoke in advance of the Bank of Montreal and Canadian Association of Petroleum Producers Energy Symposium in Toronto, where executives from major producers were scheduled to speak this week.
One trend likely to continue in the energy sector in the United States and Canada is producers doubling down on their core production areas, rather than seeking to diversify, said Adam Waterous, chairman of Calgary-based driller Strathcona Resources Ltd. That trend may drive much of the sector’s deal making, at both a large and small scale, he said.
“Look at a map, look at where the production is, look where the wells are, see who’s right next door — that’s the best chance to figure out where the M&A is going to come from,” Waterous said Tuesday in an interview at the conference.
Wells said fears that central banks’ tightening campaigns would push economies into recession have faded, and even the desire for rate cuts to increase consumption are now a marginal factor in the market, taking a back seat to incremental demand from China and India.
Looking ahead, the industry may also benefit from Mexico’s decision to curtail some exports of its medium sour crude, forcing U.S. refiners to replace it with Canadian heavy oil, he said.