Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARDS :: empanelment :: VAT Audit :: form 3cd :: TDS :: VAT RATES :: Central Excise rule to resale the machines to a new company :: articles on VAT and GST in India :: due date for vat payment :: cpt :: list of goods taxed at 4% :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARD :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes
« Mergers and Acquisitions »
 The Role Of Brand In Petroleum Mergers And Acquisitions
 Mergers and Acquisitions: What Happens After the Announcement?
 Agency mergers and acquisitions continue to be strong for first-half 2016
 The Intricacies Of Financial And Legal Relationships In M&A
 3 integration considerations for Mergers & Acquisitions
 Mergers and acquisitions take centre-stage as funding for start-ups dries up
 Mergers and Acquisitions reach highest quarterly value in India
 18 digital health exits (mergers, acquisitions, and IPOs) in Q3 2016
 Number of mergers and acquisitions rise in 2016, Experian finds
 Indian startups are more willing than ever to acquire and be acquired
 India’s mergers and acquisitions reaches highest quarterly value in Q3 2016: Report

Falling oil prices hampers oil patch mergers and acquisitions
December, 10th 2014

The rapid decline in global oil prices is setting the stage for a long dance between buyers and sellers in Canada’s energy industry.

The rout put a chill on an oil and gas acquisition market that saw about $39 billion US of deals this year and is leading sellers like Penn West Petroleum Ltd. to consider waiting for a rebound. Highly indebted Canadian oil and natural gas producers may not be able to afford that luxury, and suiters such as Crescent Point Energy Corp. Chief Executive Officer Scott Saxberg are circling for bargains.

“When oil was $100, there were companies that were struggling with their balance sheets and now oil is 60-some-odd dollars and they’re in trouble,” Saxberg said of the price for a barrel in an interview. “There will be a few of those companies that will disappear and have to be consolidated.”

Oil at a five-year low is making cash more scarce for producers that may have no choice but to sell assets or seek outright takeovers. The challenge will be finding investors willing and able to pay the price they want, Macquarie Group Ltd. analyst Chris Feltin said.

“There’s going to be lots for sale and not a lot of buyers,” Feltin said by phone from Calgary. “Asset valuations might not be what the sellers would like to sell for but in this scenario there are few other options available.”


Particularly vulnerable to the slump are producers that are highly levered and exposed to oil, Feltin said. He pointed to Talisman Energy Inc. (TLM.TO 0.00%), Penn West (PWT.TO 0.00%), MEG Energy Corp. (MEG.TO 0.00%), Baytex Energy Corp. (BTE.TO 0.00%), and Lightstream Resources Ltd. (LTS.TO 0.00%) as examples. They may consider asset sales as their capital expenditures and dividend payments exceed expected cash flows at current prices.

MEG Energy’s net debt is about 22 times its cash flow, the highest ratio of 34 Canadian oil and gas producers worth more than $1 billion ($874 million), data compiled by Bloomberg show. That compares with a median 1.6 ratio for the group. Talisman and Penn West have net debts of more than 2.3 times cash flow.

Brad Bellows, a spokesman for MEG Energy, said the company’s strategy allows it flexibility to respond to a variety of market conditions. The company said Dec. 4 it cut its 2014 budget by a third.

Penn West has already sold more than $1 billion of assets as part of a November 2013 goal to raise $1.5 billion to $2 billion through deals.


“We have the flexibility to be patient through 2015 to maximize the value of any asset sales,” Greg Moffatt, a spokesman, said in an e-mail, adding that Penn West isn’t planning any sales next year.

Andrea Beblow, a spokeswoman for Baytex, declined to comment in an e-mail. A representative for Lightstream didn’t return calls for comment.

Benchmark crude prices have sunk more than 35 percent from June highs and an Organization of Petroleum Exporting Countries decision last month to sustain output amid a global glut worsened the chances for a recovery. West Texas Intermediate fell 2.1 percent to $64.44 at 10:21 a.m. in New York, near a five-year low.

Oil and gas deals have amounted to 22 percent of about $174 billion in mergers and acquisitions involving Canadian companies so far this year, data compiled by Bloomberg show. That momentum has slowed amid the crude price volatility.


The fourth quarter has already been lumpy, with just $4.1 billion worth of oil and gas deals announced so far. That compares with more than $10 billion in each of the previous three quarters.

The latest blow to Canada’s energy industry came from Petroliam Nasional Bhd. The Malaysian producer said Dec. 3 it’s deferring a decision on a liquefied natural gas project in British Columbia at a time when U.S. terminals are being built.

Producers developing the gas-rich Montney shale that straddles Alberta and British Columbia, such as Painted Pony Petroleum Ltd. and Crew Energy Inc., would stand to benefit from projects to ship LNG from Canada’s Pacific Coast.

For now, companies that were previously considering asset sales or putting themselves for sale will likely take a step back from the negotiating table until some stability returns, said Keith Chatwin, a partner at Stikeman Elliott LLP in Calgary who specializes in energy mergers and acquisitions. This is what happened the last time oil prices fell so dramatically in 2008, he said.


“You’re going to see a lot of pause buttons being hit and people trying to get a feel for how low and for how long,” Chatwin said.

The deals that are currently well-advanced will likely still get done, Chatwin said, citing Bellatrix Exploration Ltd.’s sale of a minority interest in its new deep-cut gas plant announced last week as an example.

Eventually, though, the stress will start to mount on companies whose operations are uneconomic at $70 a barrel and will kick off more asset sales, he said.

The price of crude will complicate Talisman’s plans to divest $2 billion in assets by mid-2015, said Michael Dunn, a Calgary-based analyst at FirstEnergy Capital Corp.

The company has several sales processes ongoing, including its Marcellus midstream assets, a stake in its Duvernay lands, as well as projects in Kurdistan and Papua New Guinea. The more advanced processes, like the Marcellus, will likely close, Dunn said. Finding adequate valuations on the remainder may prove more difficult amid the drop in crude prices, he said.


Talisman, which hasn’t yet finalized its budget plans for next year, will lower its capital spending to manage what’s likely to be a “challenging environment” for the entire oil and gas industry, Brent Anderson, a spokesman, said in an e- mailed response to questions.

The company still expects one or two deals to be announced by year-end and is considering selling other properties, including those that consume capital and don’t produce much cash flow in the short to medium term, he said.

Not everyone believes the current drop in prices will spur a wave of mergers and acquisitions in the industry.

Eric Nuttall, a portfolio manager at Sprott Asset Management LP who oversees $120 million in assets, said he expects oil prices to rally to “the mid-to-high $70s” next year -- maybe even higher. Just looking at producers’ net debt to cash flow to conclude they are imperiled is a “simplistic conclusion,” he said.

The biggest opportunities in the market are the companies that are being viewed as overly levered, said Nuttall, who’s adding to his position in Baytex and other producers.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
SEO Services SEO LLC e-boost Search Engine Optimization Services Internet Marketing Services Website Placement Services On-site Webs

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions