There's been a boatload of mergers and acquisition activity in the energy patch this year, but very little analysis of how it all breaks down. We know the sector has been hot, but have seen little insight into which regions and assets look better than others, for example.
RBC Dominion Securities analyst Shailender Randhawa compiled all of the upstream mergers and acquisitions and then studied them to find common themes. Below are five key lessons from the boom:
Mid-sized is where it's at
Everyone loves reading about billion-dollar deals, but the real resurgence has come from transactions valued between $100-million and $500-million. So far this year RBC found thirty upstream deals within this range. That beats last year's figure by 50 per cent, and more importantly, tops the 23 deals of this size in 2012, which was the last time the energy market was hot.
The Cardium and Viking are getting lots of love
This year's upstream deals are concentrated on some key regions, particularly the Cardium and the Viking, which account for 50 deals dating back to 2012. Other hot areas include southeast Saskatchewan and the Montney.
Private companies are doing deals, too
They may not get as much buzz, but private companies have been active this year. Mr. Randhawa noted that the second quarter's largest deal came from Crescent Point buying privately held CanEra Energy, and so far in 2012 nine private companies have been sold for a total value of $2.8-billion.
Yield-oriented energy companies are very active
M&A deal flow from Canadian energy dividend-payers amounts to $2.5-billion this year, and there's bound to be more activity. "Based on experience from the trust era, we'd expect 20-25 per cent of [their] annual production to be replaced via acquisitions to manage declines from new drilling and extend their tax horizons," Mr. Randhawa wrote. "Given the relative scarcity of assets in the marketplace, we'd expect consolidators to increase their efforts on [private companies], public names with stretched balanced sheets and under-appreciated assets in larger companies."
Acquisition metrics haven't skyrocketed
Last quarter the average price for oil-weighted assets came in at $85,900 per barrel of oil equivalent per day. Mr. Randhawa calculates that the equivalent average trading metric for companies in his coverage universe is $111,000 per flowing barrel of oil equivalent per day.