The blockbuster transactions that dominated Canada's oil patch this year are expected to trigger a cascade of other deals in the coming months, industry experts and bankers say.
Renewed interest in Canada's oil assets led the country to the top spot globally for oil and gas mergers and acquisitions in the third quarter. Asset sales from the both the new Suncor Energy Inc. and EnCana Corp. will likely continue to fuel activity in the next several quarters.
According to investment sources, Suncor plans to shed 400 million cubic feet of natural gas production. That alone is worth an estimated $2-billion, according to industry averages. EnCana, too, plans to offload an annual $500-million in gas assets over the next few years from its new oil company, Cenovus Energy Inc.
Both companies are pursuing a "pure-play" strategy that will see them offload assets not considered part of their core business. For both Suncor and Cenovus, that means oil sands are in, natural gas is largely out.
For the rest of the industry, that means there's plenty of opportunity that will trickle down to the smallest corners of the oil patch.
"In the fourth-quarter and Q1 of next year, there will be a significant amount of activity just from those [Suncor and EnCana deals]alone," said Scott Saxberg, president of Crescent Point Energy Corp. "Those [assets]will go to the middle-sized companies, and then those companies will then spin off assets down to the juniors."
Canada's 35 oil and gas transactions, totalling $6.9-billion (U.S.), beat the next-place United States by a sizable margin. U.S. deals in the quarter reached $4.4-billion, a recovery from earlier in 2009 but still far less than the $14.3-billion achieved a year ago.
Worldwide, the industry completed $21-billion in oil and gas deals last quarter, according to PLS Inc. and Derrick Petroleum Services in a recent report.
The massive Suncor - Petro-Canada merger pushed the first nine months of 2009 to more than double the value of deals done last year, and set the stage for more to come.
The sudden availability of assets likely to be spun out of that deal "provides a lot of opportunities for companies who have been starved for conventional assets to buy," said Adam Waterous, Scotia Capital's head of global investment banking. "We've had historic low supply over the last couple of years. It's been very, very difficult for these new juniors or intermediates to grow their business."
As larger companies pursue so-called "unconventional" opportunities in oil sands and deposits of natural gas locked in difficult-to-extract shales, the more "conventional" oil and gas wells they shed could also bring in new foreign buyers, especially from Asia, Mr. Waterous said.
At the same time, he expects more deals for Canadian-based firms with overseas operations, following in the footsteps of companies like Addax Petroleum, which sold to Sinopec International this year. Continued consolidation in the oil sands is likely, he said.
Firms considered potential targets are smaller independent players like MEG Energy Corp., Laricina Energy Ltd., Value Creation Inc., Southern Pacific Resource Corp. and UTS Energy Corp.
"The interest level has perked back up again," said Mike Tims, who chairs Calgary-based Peters & Co. Ltd. "There's still lots of uncertainty in that domain, including over environmental regulations yet to come, but that area still could see some transactions."