The oil-patch downturn has divided producers into two camps: those with financial wherewithal and management credibility to raise money and buy assets; and those forced to hunker down.
Companies from the former group are taking advantage of their strong positions in a weak market, and the investment industry is reaping surprisingly rich rewards, given dire projections a few months ago.
In the past week, Whitecap Resources Ltd. launched a friendly bid for a smaller rival in the Saskatchewan Viking light oil play, Beaumont Resources Ltd., for more than $500-million. It went to the market to raise part of the money for the deal in an equity offering worth $110-million.
Energy and investment industry sources say they expect the deal activity to pick up in the coming months, especially if crude oil remains stuck in the $50 (U.S.) per barrel area for an extended period, putting more financial strain on the weaker players.
Other companies navigating through the slowdown, Torc Oil & Gas Ltd. and Kelt Exploration Ltd., have also taken advantage of a need among competitors to reduce their relative debt loads by snapping up their properties.
Some, like Kelt and Whitecap, have also used their shares as currency – even with oil at less than half the price it sold for last June, which has knocked down shares across the sector.
Meanwhile, equity markets have proven surprisingly receptive, even as corporate growth projects have been tempered.
The Canadian energy sector has issued more than $4-billion in shares so far this year, surpassing the total for the first quarter of 2014, when the sector was at the start of a boom in mergers and acquisitions.
The largest equity deals so far this year have been done by big-cap players looking to bolster their balance sheets as cash flow wanes. Among them, Cenovus Energy Inc. issued $1.5-billion of shares, Encana Corp. $1.4-billion and Baytex Energy Corp. $550-million.
All but the Cenovus bought deal sold out quickly. Baytex first said it would issue $500-million, then increased the shares on offer by $50-million.
"A lot of what happens is, the deals get launched at night and accounts hem and haw and wait until the morning, and as long as the market feels good, they tend to cover the book," one investment banker said. "All these deals have got done, and at the issue price, so that's encouraging.
"It's not the most compelling use of proceeds — shoring up your balance sheet."