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An Encana pump jack stands near Rockyford, Alberta.TODD KOROL/Reuters

Is Encana Corp. oversold or underacquired?

It's a question investment-banking types are asking as the company's shares sink under the weight of falling oil prices and last week's disappointing quarterly financial showing.

Stock in one of Canada's marquee energy producers is worth about a third of what it was a year ago. To put it another way, it spent $9-billion (U.S.) on U.S. oil acquisitions last year, a figure that is now nearly $3-billion more than the entire company's market capitalization.

In its misery, Encana's got company. Baytex Energy Corp. was another U.S. shale acquirer in 2014, buying Aurora Oil & Gas Ltd. and its Texas acreage for $1.8-billion (Canadian), $2.5-billion including assumed debt. Baytex's market cap was $2.4-billion on Tuesday.

You get the picture – with a second oil-price dip under way, reserve writedowns set to pick up pace and the Canadian dollar getting pummelled, institutional investors have rushed for the exits. Retail investors are hard on their heels.

The Toronto Stock Exchange's energy group appeared to be on a slow road to recovery in the spring, but it has lost about a fifth of its value in the past seven weeks.

It all leaves Encana, Baytex and numerous others looking more vulnerable than ever to takeover, based on their extensive operations in desirable energy neighbourhoods and shrunken share values.

The question is: Which would-be predators have the necessary positive long-term view of commodity prices, deep pockets and shareholder support? If they are out there, they're deep in the weeds.

Publicly traded companies have all been hit hard by oil's collapse, so that limits the number of buyers of domestic rivals. Imperial Oil Ltd., Canadian Natural Resources Ltd., Husky Energy Inc. and Suncor Energy Inc. have the means, if not the motive, for a big deal. Members of the world's supermajor club have been mentioned as possibilities.

At home, purchasers have been punished for recent deals. Take Crescent Point Energy Corp., which chalked up $689-million in acquisitions, buying wounded Legacy Oil + Gas Inc. and then Coral Hill Energy Ltd. in the past month.

When it announced the Legacy deal in May, it issued shares at $28.50 each. Crescent Point fetched $19.12 in Toronto on Tuesday.

For Canadian suitors, any target would have to have compelling characteristics. For instance, when Canadian Oil Sands Ltd. has tumbled – as it has recently – it's been touted as a prime morsel for Imperial Oil, its partner in the Syncrude Canada Ltd. joint venture.

A rough calculation of Canadian Oil Sands' current price of producing a barrel of synthetic crude at Syncrude, based on its market cap, is less than a third of what Imperial would need to spend building a new oil sands mine and upgrading plant. And Imperial knows the Syncrude operation intimately, being a founding partner with a 25-per-cent stake.

Oil sands assets are unlikely to be a big draw, after foreign investors have had less-than-stellar results. France's Total SA and Norway's Statoil ASA have lowered their ambitions as they have become all-too-familiar with high production costs and complexities in operating assets. State-owned enterprises were barred from buying controlling stakes in the oil sands by the federal government in late 2012.

That leaves the possibility of large private equity players and pension funds to look at big-name Canadian producers. They're said to be topped up with money and scouting for investments. It would be the classic contrarian play, requiring the conviction that the energy world is close to the bottom and recovery is lurking not too far in the distance.

Look for more speculation about consolidation in the coming weeks as energy companies release poor financial results and their share prices take hits.

If a major takeover surfaces, it would be both a symptom of the energy downtown and a potential trigger for a recovery.

A strategic buyer bucking the trend would undoubtedly spur investor interest on the prospect of more deals alone.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 27/03/24 2:16pm EDT.

SymbolName% changeLast
BTE-N
Baytex Energy Corp
+1.74%3.5
BTE-T
Baytex Energy Corp
+1.92%4.77
CNQ-N
Canadian Natural Resources
+0.49%75.47
CNQ-T
Canadian Natural Resources Ltd.
+0.39%102.44
CPG-N
Crescent Pt Energy
+1.51%8.06
CPG-T
Crescent Point Energy Corp
+1.3%10.95
E-T
Enterprise Group Inc
+1.18%0.86
IMO-A
Imperial Oil Ltd
+0.07%68.65
IMO-T
Imperial Oil
+0.21%93.29
SU-N
Suncor Energy Inc
+0.14%36.48
SU-T
Suncor Energy Inc
+0.02%49.5

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