After two remarkably similar takeover deals in the oil patch, it's clear there is some money chasing Canadian energy assets in a down market. It's also clear that it is still limited.
With junior producer TriOil Resources Ltd.'s announcement on Monday that it is being taken over by Poland's PKN Orlen S.A. for $187-million, a template has emerged.
It goes like this: A small oil company on the auction block for several months agrees to a buyout by large foreign player looking to establish a Canadian foothold. The foreign player keeps the purchase price below Investment Canada review threshold, and retains local management to run the business and scout for assets as a way to bulk up over time.
The pattern was established early this month with the $230-million takeover of Novus Energy Ltd. by Yanchang Petroleum Group. It is one state-owned Chinese oil company that had not bought into Canada during the rush of the previous five- to 10-years, when oil sands and shale gas were the targets of choice. TriOil and Novus are both known for light oil assets with expansion potential.
This year, the oil patch deal machine has powered way down, with the value of transactions in the first half less than a quarter of what it was in the same period in 2012. This fall's transaction fashion, which also features less-than-toppy valuations, may be a symptom of weak markets rather than a sign of rebound.
"I don't know if it's the way of the future, but it's the way of the present," AltaCorp Capital Inc. analyst Don Rawson said. "It's a tough market to sell. The current market isn't stepping up to buy these juniors and bid them up and pay for growth. This is one way out where investors can get cash."
PKN Orlen, about one-quarter owned by the Polish government, is one of central and eastern Europe's largest petroleum concerns with a market value of about $6-billion. It has offered $2.85 for each TriOil share, a 31 per cent premium over the weighted average TSX Venture Exchange price in the previous 10 days. It is a far cry, however, from the $3.30 area the stock was fetching just before the company started its "strategic review" process in February.
"The metrics are disappointing. This is not the result I was hoping for, or that shareholders who have been in here would have been hoping for," Mr. Rawson said.
But it's something, and when a company has announced a public process to seek a buyer, that's often better than pulling it back and sparking a sell-off.
In previous years, successful juniors could often count on an array of suitors with deep pockets, from energy trusts to large-cap exploration and production companies. Today, the former are mostly extinct and the latter are struggling with their own weakened share prices, which limit their ability to use equity as currency for acquisitions. In fact, many of the large cap companies may be looking to sell their own assets.
None of this is lost on TriOil CEO Russ Tripp, who will be leading PKN Orlen's efforts to expand in Canada. TriOil's properties are currently concentrated in the Peace River Arch, Central and Southern areas of Alberta.
"I would have liked to have seen a higher price," Mr. Tripp said. "We certainly think we have assets that do have considerable upside, so in a normal market we would have seen a higher price. But we're in a very capital-constrained market, so just getting one across the goal line is a credit to everybody."
Some investment bankers in downtown Calgary have expressed some optimism that the deal flow could get a bit more brisk in the coming months, if would-be buyers are able to attract capital and sellers are willing to temper their expectations a bit.
If that is the case, then the TriOil and Novus deals could prove to be the start of a trend, rather than a product of slow markets and unfortunate timing.