You can read more of Big Deals, the Globe's exclusive report on mergers and acquisitions, here.
Low natural gas prices and battered balance sheets have made natural gas producers popular takeover targets and joint venture partners. In 2013, natural gas deals will continue, and the targets are expected to sport one common – and very specific – characteristic: location.
Large energy companies have been gearing up for liquified natural gas projects, drawing British Columbia deeper into the mergers and acquisitions game. A handful of global companies have already made their moves. Dan Barclay, head of BMO Nesbitt Burns Inc.’s Canadian mergers and acquisitions business, says deals in the LNG game will be a dominant trend in 2013.
The LNG market is bustling for two reasons: Asian consumers need to secure energy, and the proliferation of natural gas shale plays has led to a North American glut that has depressed prices to record lows. A healthy LNG market will alleviate both factors. And now that Ottawa has essentially outlawed takeovers in the oil sands, hungry buyers need a new pool of targets.
“The driving trend will continue to be LNG and people positioning around LNG,” Mr. Barclay said. “LNG is a big balance sheet business. And if you don’t have an enormous balance sheet, you can’t do LNG. And so that means we’re going to see transactions where very large companies acquire small or medium companies to set that up.”
The infrastructure to ship natural gas to Asian markets – pipelines and export terminals – hasn’t been built, but there are projects in the works.
And so the race is on for LNG assets, making northwestern Alberta and northeastern British Columbia a hot zone because of the large pools of gas and proximity to the Pacific coast. Malaysia’s Petronas, for example, bought Progress Energy Resources Corp. last year, and ExxonMobil Corp. took out Celtic Exploration Ltd.
While Petronas’ acquisition played a role in the government tightening foreign investment rules, Mr. Barclay does not think the new guidelines will keep similar buyers out of the LNG business. The industry is in its infancy, and is in need of cash in a way the established oil sands does not.
Buyers, he suspects, will come from large players in Asia, Europe and the United States. Canadian companies generally lack the needed financial firepower and are expected to be on the sidelines.
Dan Cristall, Macquarie Capital Markets Canada Ltd.’s global head of oil and gas, does not expect a dramatic improvement in natural gas prices this year. This will spur deals in the natural gas sector.
Major companies will continue to make large-scale acquisitions for land holdings so they can get the size and scale of gas needed to support the development of LNG export facilities, he said.
Mr. Cristall does not expect a flurry of oil deals because of the discount on western Canadian crude as well as a shortage of pipeline capacity.
These issues, he added, will have more of an effect on deals in 2013 than Ottawa’s new rules limiting the ability of foreign state-owned enterprises to buy assets in the country’s resource sector, he added.