Skip to main content

A Statoil field worker looks at oil well heads on a well pad at the company’s oil sands operation near Conklin, Alta. The announcement from Statoil and Thailand’s PTTEP that they would sever their oil sands partnership will be the first test of Ottawa’s more stringent rules on foreign acquisitions.TODD KOROL/Reuters

It's unlikely that merger-and-acquisition activity in the oil sands will pick up much this year as foreign state oil companies, the sector's onetime buying machines, stay on the sidelines and oil markets remain shaky, TD Securities Inc. predicts.

State-owned enterprises were effectively barred from buying control of oil sands assets except under exceptional circumstances after the Harper government tightened regulations with its approval of the $15.1-billion (U.S.) takeover of Nexen Inc. by China's CNOOC Ltd. in late 2012.

The new rules, along with lingering uncertainty about the industry's ability to get crude to Canada's West Coast for export to Asia and more difficult regulatory approvals for projects, are the main factors expected to keep the deal flow to a trickle, TD analysts said in an outlook for the oil sands sector in 2014.

One wild card is the weakening Canadian dollar, which would increase the buying power of would-be suitors, the bank said.

A previous indicator of oil sands acquisition activity had been U.S. benchmark oil prices – the stronger the market, the more brisk the deal activity. That is no longer the case, with Canadian crude oil more influenced by domestic factors, including the volatility of price differentials due to delays in pipelines aimed at moving supplies to the West Coast, TD said.

"Given industry expectations of continued robust growth in oil sands production, improved tidewater access will remain a critical factor in any decision to put new capital to work in the oil sands," the analysts said. "Given [environmental groups'] opposition to greenfield and brownfield pipeline expansion activity, and even crude-by-rail initiatives, the investment appetite of the [national oil companies] has been sidelined, in our view."

The value of deals in 2013 back that assertion up. In total, there were $770-million worth of deals – a nine-year low – with Exxon Mobil Corp.'s and Imperial Oil Ltd.'s purchase of an undeveloped lease from ConocoPhillips accounting for the lion's share. There were none by foreign state-owned enterprises. That compares with roughly $1.8-billion in 2012 and more than $8.4-billion in 2010, a high-water mark in which national oil companies did the bulk of the deals, according to TD.

Perceptions of of tougher regulatory proceedings for proposed projects may also be adding some chill, the bank said. It cited the Athabasca Oil Corp. saga for the Dover project. Regulators approved that development over the objections of the Fort McKay First Nation. The aboriginal group appealed the decision, and a hearing is set for March.

In the meantime, Athabasca must wait for a decision on the project before its partner, PetroChina, can exercise an option to buy the Canadian firm's interest for $1.3-billion.

Last week, Norway's Statoil and PTTEP of Thailand announced they would sever their partnership on the Kai Kos Dehseh project in an agreement that will be the first test of Ottawa's more stringent rules for foreign acquisitions of oil sands assets, though the deal will not result in an overall increase of foreign control.