IPO levels expected to rise, along with corporate transaction activity
CALGARY, Feb. 22 /CNW/ - Increased optimism will drive robust
transaction activity in the Canadian oil and gas sector in 2011, with a
greater range of acquirers getting in the game, says Ernst & Young.
"Strategic alliances and joint ventures are on the growth agenda this
year as more Canadian companies partner with foreign entities to share
risk and increase financial strength and resources," said Kevan
Holroyd, Executive Director in Ernst & Young's Oil and Gas practice.
"We're also seeing confidence return to smaller oil-weighted companies
who have been nursing their balance sheets and to financial investors
who are re-establishing their interest in the sector."
In 2010, Canada witnessed fewer but larger deals that included a 67%
increase over 2009, (not including the $20.7 billion Suncor-PetroCanada
merger,) in the value of Canadian oil and gas transactions to $35.7
billion. In terms of megadeals, the sector saw SINOPEC's acquisition of
ConocoPhilips' Syncrude oil sands operation for $4.65 billion, Total
SA's acquisition of certain properties from Suncor for $2.43 billion
and Total Canada's purchase of UTS Energy Corporation for $1.5 billion,
The oil sands drove the IPO market with the two largest 2010 Canadian
IPOs represented by Athabasca Oil Sands' $1.35 billion offering and MEG
Energy's $700 million offering. This year, IPO activity levels are set
to rise with upstream and oilfield services likely to remain the engine
room of deal flow.
"In oilfield services, we're seeing some big US companies sitting on
large amounts of cash and looking to re-enter the Canadian market,"
said Holroyd. "This also rings true for Canadian services companies
that have sat on the sidelines over the last few years and are now
looking to consolidate and transact."
High debt levels of junior oil and gas companies that are natural gas
weighted mean corporate transactions will feature prominently in the
deal mix this year, compared to the gas asset packages that dominated
the 2010 transaction landscape. Natural gas prices, a victim of a
robust supply in a time of moderate demand, will also be an important
driver of the extent of transaction activity, particularly as prior
opportunistic hedges come off the table and squeeze cash flows.
"Despite an optimistic outlook for 2011, oil and gas companies need to
prepare for the unwelcome return of rising costs, a lack of available
labour, as well as project delays and budget overruns that plagued the
sector leading up to the recent financial crisis," said Holroyd.
Holroyd adds that there's significant growth ahead, especially for those
companies in the Western Canadian Sedimentary Basin proactively
pursuing new areas of sustainability, including the application of
technology to drive down costs and enhance efficiency. This includes
the strides made in horizontal drilling, multi-stage fracturing and
enhanced oil recoveries, along with the continued building and
strengthening of strategic relationships and alliances with key global
players that were so prevalent in 2010.
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