Skip to main content

Small oil sands developers, already struggling with high costs and limited access to funding, were particularly affected by OPEC’s decision not to cut production.LARRY MACDOUGAL/The Canadian Press

When a company says it is evaluating strategic alternatives, it often means it is running out of options as a going concern and is putting itself on the auction block.

The dramatic drop in oil prices has already prompted some energy companies to hire financial advisers to help them take that big step, and it is bound to force others to follow suit as the market rout extends for what could be several months, punishing share prices.

Oil and gas companies with high debt have the toughest time surviving a severe fall in crude prices because the cash flow needed to service the debt and to plow back into operations dwindles. Those are the ones most likely to search for suitors, said Chris Cox, analyst at Raymond James.

"On the exploration and production side, I suspect there will be a lot of it.

"There are certainly a lot that have pretty challenging leverage positions that necessitate some significant action if we see a period of prolonged low oil prices," Mr. Cox said.

Some larger firms in that position, including Talisman Energy Inc., Penn West Petroleum Ltd. and Lightstream Resources Ltd., were hit hard in the market this week, although they have not sought alternatives.

Small oil sands developers were struggling before the Organization of the Petroleum Exporting Countries decided against lowering production, which triggered a massive sell-off in world oil markets. Many are dealing with the high costs of such a complex business and limited access to funding.

At least three have said they are weighing alternatives.

This week, Connacher Oil and Gas Ltd. said it hired Bank of Montreal to "devise and implement a strategy to address" its capital structure. Southern Pacific Resource Corp. engaged RBC Dominion Securities to help search for alternatives, the producer's second such move.

Privately held Laricina Energy Corp. said last month it hired Bank of Montreal, Peters & Co. Ltd. and Morgan Stanley to examine strategic options, including a sale.

It made the move after deciding against a long-planned initial public offering.

Among junior oil and gas producers, Waldron Energy Corp. hired Cormark Securities Inc. to help it pursue a merger or sale of all or part of the company. It said it believes its high debt position makes its various assets more valuable than the firm as a whole.

Struggling oil field service firm GasFrac Energy Services Inc., known for its unique waterless rock fracturing technology, has hired CIBC World Markets help determine whether to sell assets, seek joint ventures or put the company on the block.

The move comes after the entrance last spring of New York-based activist investor Julien Balkany.

Report an error

Editorial code of conduct

Tickers mentioned in this story