Prepare for a series of Canadian energy deals as the new year unfolds, says Adam Waterous, global head of investment banking at Scotia Capital and the head of Scotia Waterous, its oil and gas M&A arm.
"You'll see a number of transactions get announced in the coming months," he predicts.
As an adviser on a number of deals in 2010, Scotia Capital sold the equivalent of more than 100,000 BOEs a day in production assets, which is likely a Canadian record, he says. While he's not willing to bet that it will top its record this year, he says there's not doubt that 2011 will be "extremely active."
One of the big trends he's watching - and using to proactively stir up business - is the rising level of interest that Chinese and South Korean firms are showing in oil and natural gas investments where the goal is purely economic returns (as opposed to shipping the production back to their homeland, as tended to be the case beginning in 2001, when PetroChina acquired Repsol's Indonesian oil assets, until recently).
As an example, he cites Korea National Oil Corp.'s $525-million deal for Hunt Oil Co. Canada's assets in December, one of the many deals involving a Chinese or Korean firm that kept Scotia Capital's advisors busy last year.
"The vast majority of the production, over 80 per cent of Hunt Canada's production, was conventional natural gas that is landlocked and has no potential of ever being shipped to the west coast," Mr. Waterous says. "What's driving that is just the perception of making attractive investment returns within Canada, and we're seeing similar things happening in the United States as well. But it's just started, it's a very new development."
What that means is that the number of potential targets that Chinese or Korean firms might pursue has widened dramatically. At the same time, those acquirers are looking to take on more of an active operating role to drive their returns, Mr. Waterous says.
That's something that potential acquirers in North America should wake up to, he suggests. The slow deal-making pace that once characterized Asian buyers has fallen by the wayside. When Scotia Capital took the idea to Sinopec of buying 40 per cent of Repsol's business in Brazil, the Chinese behemoth was able to go from a standing start in terms of understanding the asset to signing the $7.1-billion deal in little more than two months. "There is not a western company that we know of that could act that fast," Mr. Waterous says. "Today these major Asian buyers, be they Chinese or Korean, will not only pay very competitive prices but they will outmaneuver their western counterparts on speed and efficiency in completing a transaction."