Takeovers, joint ventures, and initial public offerings are the splashy deals that renovate Canada’s energy sector. But in 2010, the largest change in the oil patch came as a result of a string of lower profile transactions that added up to an unmatched transformation.
Energy companies, led by the majors, ditched roughly 140,000 barrels per day of conventional oil and gas production last year, an all-time high for these old-school zones, according to Scotia Capital. It was a year in which many energy outfits decided they had two choices: They could sell, opting to pursue the more expensive but lucrative unconventional oil and gas fields, or they could play the role of industry contrarians, doubling down on conventional assets.
The rapid-fire selling – led by Talisman Energy Inc., Nexen Inc., Suncor Energy Inc., Exxon Mobil Corp., and ConocoPhillips – allowed those companies to be more focused and concentrate their Canadian spending on oil sands and shale natural gas projects. Those that snagged conventional assets – Husky Inc., Canadian Natural Resources Ltd., and a slew of smaller players, some backed by private equity firms – gained critical mass.
“That kind of dramatic remaking of portfolios is unprecedented,” Adam Waterous, head of global investment banking at Scotia Capital, and head of Scotia Waterous, the bank’s energy advisory division, said. “You’re getting a bifurcation of the large caps and their strategies.”
Though some of the announcements were monstrous – Talisman sold $1.9-billion worth of conventional assets in five deals in April – the oil patch’s makeover was mostly done by stealth. Moreover, because much of the market considers conventional assets washed up, those deals captured little attention – even if the end result meant that sellers had extra cash to pour into flashy oil sands or shale gas projects.
“No one transaction was a major headline grabber, but cumulatively, it was a dramatic reshaping of the landscape in western Canada,” Mr. Waterous said, noting his firm was involved in about two-thirds of the total asset sales. “The pace of the restructuring surprised the industry.”
The trend continues. Apache Corp., for example, recently hired RBC Capital Markets to help sell some of its conventional natural gas assets in British Columbia, Alberta and Saskatchewan.
The asset sales were, in part, fuelled by stock prices. The market, buoyed by an improving economy and a sharp improvement in the price of crude, is generally paying a reasonable price for energy companies. That has made outright takeovers, where premiums are a must, difficult, said Kent Ferguson, a managing director in RBC’s energy investment banking group. So the action turned to deals for smaller properties.
While asset sales changed the face of Canada’s energy sector in 2010, two of the country’s largest IPOs cannot be ignored. Both were oil sands deals, and the first, a $1.35-billion debut by Athabasca Oil Sands Corp. in April, had a notable effect on its follower, MEG Energy Corp., which pocketed $700-million in July.
Athabasca’s deal initially looked like a hit, with GMP Securities drumming up more demand than Athabasca anticipated. The excitement quickly crashed, with the stock falling from the IPO price of $18 to about $10 in less than two months. It has since rallied to more than $16.
Athabasca’s history weighed on its performance. In 2009, the company struck a joint venture deal with PetroChina Co. Ltd. on two of its oil sands efforts – the MacKay River and Dover projects. PetroChina paid $1.9-billion for a 60 per cent stake in each of these projects, but the contract came with a twist: PetroChina has the right to buy the remaining 40 per cent of the projects if it chooses to, within 30 days of their respective regulatory approvals.
