Energy sector transformed by 2009 transactions.
Saturday, January 2nd, 2010
Canwest News Service // Calgary Herald
CALGARY – It was the year of the mega-deal.
Despite fewer overall transactions, merger and acquisitions in 2009 were dominated by a handful of super-deals that reshaped the oilpatch landscape for the decade to come as familiar faces fell by the wayside, to be replaced by some new players sure to become household names.
The wheeling and dealing began in earnest in March with the $40-billion wedding of Suncor and Petro-Canada, the largest corporate hook-up in Canadian history. It ended in December with the $40-billion breakup of EnCana into two separate pure plays: the heavy oil-loaded Cenovus Energy and the new unconventional-gas giant EnCana, each $20-billion companies in their own right.
Those two deals are expected to fuel another wave of buying and selling in 2010 as they shed non-core assets and consolidate operations, says Robert Lehodey, who runs a merger-and-acquisition practice with Osler, Hoskin & Harcourt in Calgary.
"It (2009) was a pretty interesting year," he says. "We know both EnCana and Suncor are going to sell off stuff, that'll give a lot of opportunities for smaller companies that can go out and get funding to buy."
But overall, the tone and tempo of activity through the year was schizophrenic and sporadic. After falling in January and February, oil prices recovered throughout the year, even as gas continued to lag. Continued uncertainty in financial markets combined with a number of rule changes and government policies with respect to royalties convinced some companies to sell despite a lack of enthusiastic buyers.
"There wasn't a market dynamic through the last half of 2009 where you had a whole bunch of buyers and people looking to sell," Lehodey continued. "There isn't much of a dynamic when everybody is looking to sell.
"We seem to be recovering on the oil side, haven't really recovered on the gas side."
Critics complained the EnCana split exposed each new company to the threat of a hostile takeover, especially after Exxon Mobil anted up $41 billion US to buy U.S.-based XTO Energy, instantly establishing itself as a major unconventional gas player with a presence in all of North America's shale plays, including the Horn River in B.C.
Other notable deals in 2009 included the tie-up of Petrobank's Canadian plains unit with Tristar Oil and Gas to form Petrobakken, one of Saskatchewan's largest unconventional oil players.
Trusts were relatively quiet ahead of the 2011 deadline to convert back into corporations, and it's still unclear how the re-emergence of a whole new class of intermediate energy companies will affect the appetite for oil-and-gas assets over the next 12 months.
But the one story that never emerged in 2009 was the consolidation of juniors, said Bruce Edgelow, the vice-president of the ATB Financial's energy- services division. With the abundance of assets expected to hit the market in 2010, many companies are still too small to take advantage of future buying opportunities, he said.
"There are going to be some large, large packages," he said. "The difficulty for juniors is to get the attention from financial markets because they're going to be dwarfed by the size of the packages."
Not all deals in 2009 were a slam dunk. In April, tiny UTS Energy Corp. successfully fended off a hostile takeover bid from French oil major Total Canada in what could be characterized as a David versus Goliath struggle.
Total, which was rumoured in late 2008 to be considering a run at Nexen, is on record to be looking for more buying opportunities to fuel its growing oilsands business in Canada.
Edgelow described Total as a "sleeping giant," that can't be ignored. "They are still a force to be reckoned with."
After years of rumours, 2009 was the year that China made its first meaningful foray into the oilsands. But rather than making a grand entrance with one of Canada's senior producers, PetroChina chose to partner with small, privately held Athabasca Oil Sands Corp. for 60 per cent in two oilsands leases at Dover and MacKay.
Wenran Jiang, who heads the University of Alberta's China Institute, said the smaller numbers belie the huge significance of the transaction after it was approved by the federal government last week.
It also marks a new-found maturity in the thinking of both PetroChina and the federal government, which had been accused of letting Cold War ideology get in the way of business deals. That seemed to change after Prime Minister Stephen Harper visited Beijing in late 2009, Jiang added, opening the door to warmer economic ties.
As for PetroChina, it marks a step away from the idea that it needs to export raw resources back to China. Instead its more content to pursue a strategy of becoming a domestic player, selling its production within the integrated North American market. Rather than pursue blockbuster deals, China will increase its presence in smaller incremental steps in the coming months and years, he added.
"It's a long learning curve, more of a market oriented approach," Jiang said. "I'm glad they're learning and moving forward. When they see politically positive signals, they will feel more reassured and confident they can make investments and not rouse a lot of attention. Expect more Chinese investment in the resource and energy sectors."
Calgary Herald
http://www.kelowna.com/2010/01/02/energy-sector-transformed-by-2009-tran...
