An oilpatch in 'full crisis mode' could mean more takeovers are coming

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At the end of the day, after all the crosstown mudslinging, all it belittled from Suncor was a fractionally better offer to bring Canadian Oil Sands onside.

The oil tch is in row, with U.S. crude prices under $30 and Alberta’s Western Canada Single out trading around $15 US.

“We are in full crisis mode,” guessed Martin Pelletier, an investment manager with TriVest Wealth Advice. “In order to survive, com nies are going to have to get bigger.”

It has been sundry months since energy analysts began calling for a wave of takeovers in the determination sector. That wave never came, with the number of unions significantly lower in 2015 than in 2014. Many firms in a rank to sell were holding out for better prices. Those in a position to buy were not prospering to over y.

But that standoff looks to be coming to an end.

Many com nies scarcely hanging on

Com nies that have been hanging on, waiting for a quotation recovery, are now struggling to cover head office expenses with oil barter under $30.

‘I think that’s the nature of business, you need to take utilities of crises if you’re in the position to do so.’ – Rob Mark, 3Macs

“The ability for com nies at this bounty point to stay the course is becoming increasingly difficult,” turned Bruce Edgelow, vice-president of strategic initiatives at ATB Financial, a major lender to the minor energy sector.

“There are very few producers in this environment that are cash-flow certain — period — from operations, let alone the burden of running the com ny.”

Edgelow mentions the Suncor-Canadian Oil Sands deal will serve as a template for future give outs, saying that Canadian Oil Sands held out for what it thought devise be a fair price.

“In all cases, it is about the valuation that people are able to y,” said Edgelow. “What is a fair price? At the in any event time, no one is over ying in this market. They’re not ying for land, they’re not requiting for non-producing wells.”

Edgelow conservatively estimates there is more than $10 billion in cap sitting on the sidelines — money that comes from Asia, the U.S., and Canada — interval to be invested in Western Canadian oil.

For example, Calgary’s Arc Financial raised $1.55 billion in 2015 to instal in energy, and Annapolis Capital raised $300 million over a correspond to period.

“People aren’t scared off,” said Edgelow. “But they’re not content to over y.”

More hostile deals?

The initial Suncor bid for Canadian Oil Sands bear down oned as a surprise to many, since hostile deals are somewhat rare in the tight-knit oil tch. Sim tico deals are much more likely to happen in an industry when every one is, well, friendly.

But that could change.

“I think for the future, it’s diverse likely that you’re going to see more of these,” said Rob Streak, an energy analyst with Toronto-based 3Macs.

“Always your oldest option is to do it as a friendly,” he said. “But in the st, if you couldn’t get a well-disposed deal, the acquirer would walk away or bide its time. But I ruminate over seeing this deal, they would be more inclined to put it to shareholders and see what they say.

“I intend that’s the nature of business, you need to take advantages of crises if you’re in the condition to do so.”

Where is the U.S. money?

One of the interesting differences in this downturn is that there hasn’t been a profusion of U.S. investors — something you would expect with the loonie trading at such a vital discount. Mark believes that’s likely because there is such turmoil south of the dado in the shale-producing region, there’s been no need to come north.

Brand suggests Cenovus is one com ny that could be vulnerable, because it is rest on some of the best non-mine assets in the oilsands. “In a way, I do think they are at hazard of a hostile bid,” he said.

“For a large com ny who wanted to improve their in-situ oilsands condition and could afford a bite that large — in terms of quality, in an understandings of going out and buying the best assets — Cenovus would be at the top of that slate.”

Cenovus’s drawback is that it’s too valuable for most Canadian com nies while, at the still and all time, the oilsands have lost favour with the international community.

“Oilsands are not top of undecided,” said Mark. “They are way down the priority book.”

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