The Canadian energy industry could be in for a raft of new joint venture deals, following a big drop in acquisition activity in 2013.
Analysts at CIBC World Markets cite several reasons why we're likely to see more alliances in 2014, particularly Ottawa's tightened rules on investments by foreign state-owned enterprises.
The rules, which essentially barred foreign bidders from acquiring oil sands assets, accompanied the government's approval of the $15.2-billion (U.S.) takeover of Nexen Inc. by China's CNOOC Ltd. in late 2012. The guidelines placed no restrictions on acquisitions of other types of assets, though investment bankers say tighter scrutiny has contributed to an overall slowdown in mergers and acquisitions.
"The JV structure is likely more amenable to the Canadian federal government (as opposed to outright foreign acquisitions) as it does not result in a majority controlling interest, meaningful influence in the industry, and the sale of large Canadian resources to non-Canadian entities," CIBC said in the report. "As such, we believe there is likely to be an increasing number of JVs announced over the near to medium-term."
Until this year, deals between foreign entities and domestic companies tended to be large, spanning wide swathes of oil sands or shale gas acreage. However, in 2013, foreign acquisitors opted for smaller deals, such as the $187-million bid for TriOil Resources Ltd. by Poland's PKN Orlen S.A., and the $230-million offer for Novus Energy Ltd. from Yanchang Petroleum Group of China.
Among other trends in the oil patch, CIBC noted international investment dollars flowing back into the sector, particularly from U.S. investors. Buyers will be looking for value in the underperforming group, and expect to see strength in North American oil prices as well as a huge increase in the use of oil-by-rail, which is helping alleviate congested pipelines.
The analysts said they expected oil-by-rail capacity to sustain an additional 700,000 barrels a day by 2015.