More players getting in Canada's oil and gas transactions game in 2011: Ernst & Young

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, among others.

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.

About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

For more information, please visit ey.com/ca.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

SOURCE Ernst

For further information:

Brooke Morris   
brooke.morris@ca.ey.com 
604 899 3597 


Julie Fournier   
julie.fournier@ca.ey.com 
514 874 4308   


Serina Yau 
serina.yau@ca.ey.com
416 941 1810

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