Oilpatch buyers expected to stay on the sidelines in 2020, analysts say

Oilpatch buyers expected to stay on the sidelines in 2020, analysts say

CALGARY — A mindset of “hunkering down” in the face of persistent headwinds means mergers and acquisitions activity in Canada’s oilpatch will likely remain at low ebb in 2020, analysts say.

A recent spate of consolidation of producers in prolific Texas oilfields — WPX Energy announced the US$2.5-billion purchase of Felix Energy last week — has some investors wondering when the same thing will happen in Canada, particularly in the rich Montney resource play on the northern Alberta-B.C. border, said analyst Jordan McNiven with Tudor Pickering Holt & Co.

But the Canadian M&A situation is quite different, he said. Factors including declining share prices, low stock-market trading volumes, poor access to capital and industry pessimism over export pipeline constraints mean companies are more interested in surviving than growing.

“It certainly makes it more challenging. Canadian guys are facing more country risk and currency risk and regulatory risk, and then you layer on top of that liquidity risk,” said McNiven.

“(Investors) have to have a compelling reason to accept all of those risk factors and invest in Canada instead of the U.S.”

He explained low trading volumes discourage large investors from buying oilpatch stock in Canada because their trades could have too much impact on share prices.

Statistics from Evaluate Energy show that year-to-date upstream transactions in Canada in 2019 add up to about US$4.6 billion (C$6 billion), down from US$11.2 billion in all of 2018 and US$32.2 billion in 2017.

In contrast, upstream deals in the United States are up this year to US$94.1 billion from US$81.5 billion last year and US$66.7 billion in 2017.

“I think a lot of what we’ve seen in 2019 (in Canada) will continue into 2020,” said Tom Pavic, senior vice-president with Calgary-based Sayer Energy Advisors.

“It’s a lack of capital. We’re seeing very little in the way of financings being done in the upstream oil and gas industry. Whatever excess capital companies do have, they’re not using it on M&A, they’re using it for share buybacks and payback of debt.”

In its 2020 production guidance news release this month, Calgary-based producer Tourmaline Oil Corp. said it expects to have access to over $800 million for “select acquisition activity” next year.

The news is remarkable because it’s so rare, analysts agreed, adding the company has had to employ a unique solution to raise the money.

The acquisition pool is expected to be freed up through the company’s creation of subsidiary Topaz Energy Corp., which will take ownership of its midstream and royalty assets in exchange for the expansion cash.

Companies that merge often justify it by citing cost synergies, the ability to do more with fewer people and resources.

There’s less to gain in Canada where years of cutting costs and exploration budgets have reduced expected administration costs to an average of about six per cent of cash flow in 2020, compared with U.S. peers at 13 per cent, McNiven pointed out.

Husky Energy Inc. recently confirmed it had reduced its ranks by 370 employees this year because it is spending less on growth.

The S&P/TSX Capped Energy Index, which tracks share prices of major producers, has dropped by more than a third in the past three years, suggesting there are plenty of bargain-priced publicly traded companies for buyers to look at.

But ””urning over the keys at the bottom of the market is a tough pill to swallow,” noted McNiven.

Just Posted

RCMP looking for these two suspects
Police looking for suspects who stole truck in central Alberta

A Ford F350 was stolen out of Blackfalds on June 9. Two… Continue reading

An excavator is tearing up old parking lots at the Michener Centre north site. (Photo by LANA MICHELIN/Advocate staff).
Demolition gets underway at Michener Centre’s north site

Some people are nostaligic, but not everyone is sad to see it go

The Red Deer Indian Industrial school stood off Burnt Lake Trail and across the Red Deer River from Fort Normandeau. The residential school is known to have lost at least 70 students through illness, poor sanitation and nutrition. (Advocate file photo)
Some Indigenous leaders say SNC-Lavalin can’t make up to First Nations people with offer of help

Quebec company is connected to MP Jody Wilson-Raybould allegations

RCMP are looking for this 30-year-old missing woman.
Red Deer RCMP looking for missing woman

The Red Deer RCMP are asking for the public’s assistance to locate… Continue reading

Canadian Prime Minister Justin Trudeau participates in a plenary session at the G7 Summit in Carbis Bay, England on Friday June 11, 2021. THE CANADIAN PRESS/Adrian Wyld
Canada donating 13M surplus COVID-19 vaccine doses to poor countries

Trudeau says the government will pay for 87 million shots to be distributed to poor countries

Philadelphia 76ers' coach Doc Rivers yells to his players during the first half of Game 4 of a second-round NBA basketball playoff series against the Atlanta Hawks, Monday, June 14, 2021, in Atlanta. (AP Photo/Brynn Anderson)
Young leads Hawks’ rally past Sixers with Embiid hurting

Hawks 103 76ers 100 ATLANTA — Trae Young overcame a cold start… Continue reading

Winnipeg Blue Bombers quarterback Chris Streveler pushes away Hamilton Tiger-Cats' Cariel Brooks during the second half of the 107th Grey Cup in Calgary, Alta., Sunday, November 24, 2019. THE CANADIAN PRESS/Todd Korol
CFL board of governors votes unanimously to start 2021 season in August after meeting

The CFL says professional football will return to Canada in August. The… Continue reading

Boston Red Sox's Rafael Devers looks toward teammates while celebrating after his winning RBI-single in the bottom of the ninth inning of a baseball game against the Toronto Blue Jays at Fenway Park, Monday, June 14, 2021, in Boston. (AP Photo/Charles Krupa)
Vlad Jr homers to tie it, Red Sox top Blue Jays in 9th, 2-1

BOSTON — Rafael Devers hit a line drive off the Green Monster… Continue reading

A health-care worker holds up a sign signalling she needs more COVID-19 vaccines at the 'hockey hub' mass vaccination facility at the CAA Centre during the COVID-19 pandemic in Brampton, Ont., on June 4, 2021. THE CANADIAN PRESS/Nathan Denette
Experts divided on easing COVID-19 rules for fully vaccinated adults

As provinces accelerate their efforts to get their populations fully vaccinated against… Continue reading

In this artist's sketch, Nathaniel Veltman makes a video court appearance in London, Ont., on June 10, 2021 as Justice of the Peace Robert Seneshen (top left) and lawyer Alayna Jay look on. THE CANADIAN PRESS/Alexandra Newbould
Terror charges laid against man accused in London attack against Muslim family

A vehicle attack against a Muslim family in southwestern Ontario that left… Continue reading

Deputy Prime Minister, not shown, and Minister of Finance Chrystia Freeland joins Prime Minister Justin Trudeau as they participate in a virtual discussion from Ottawa on Monday, May 3, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Liberals move to cut debate, force vote on bill to implement 2021 budget

OTTAWA — The Trudeau Liberals’ sweeping budget bill is moving faster to… Continue reading

The Pfizer-BioNtech COVID-19 vaccine is prepared at a vaccination clinic in Dartmouth, N.S. on Thursday, June 3, 2021. A new study in England suggests the Pfizer-BioNTech and Oxford-AstraZeneca vaccines are extremely good at keeping people from ending up in the hospital with COVID-19, even after just one dose. THE CANADIAN PRESS/Andrew Vaughan
Pfizer, AstraZeneca preventing hospitalizations from Delta variant in Britain

OTTAWA — A new study in England suggests even just one dose… Continue reading

Minister of Health Patty Hajdu arrives for a news conference on the COVID-19 pandemic in Ottawa on December 4, 2020. THE CANADIAN PRESS/Justin Tang
Handing over Winnipeg lab documents has ‘national security’ implications: Hajdu

Documents related to the firing of two scientists from the high-security laboratory… Continue reading

Most Read