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Oil patch M&A activity gains momentum

The Kearl oil sands plant, located approximately 75 kilometres northeast of Fort McMurray, Alta.


The oil patch has buzzed about a deal renaissance since the start of the year, and the numbers prove it's well under way.

Takeovers and financing have picked up in a big way as natural gas prices, heavy oil price spreads and the Canada-U.S. dollar exchange rate all catapulted into favourable ranges for the Canadian energy sector.

It has prompted investors to reacquaint themselves with energy producers, leading to the end of a drought of new capital for oil and gas projects, said Tom Pavic, vice-president at Calgary-based Sayer Energy Advisors, which tracks energy-sector M&A as well as equity and debt financing.

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Commodity prices remain strong, and some analysts predict natural gas markets could finish 2014 at their highest levels in years as producers struggle to refill inventories that were depleted during the frigid winter that hit most of the continent.

In the first quarter of 2014, the energy industry racked up $8.6-billion worth of mergers and acquisitions, according to Sayer. That was up more than tenfold from the same period a year earlier, when the sector eked out around $750-million of activity.

The most valuable transaction of the quarter was Canadian Natural Resources Ltd.'s $3.1-billion purchase of Devon Energy Corp.'s Western Canadian conventional oil and gas assets.

Business has not slowed in the second quarter. Sayer reported $1.8-billion of transactions, with the largest being Crescent Point Energy Corp.'s takeout in April of privately held CanEra Energy Corp. for an enterprise value of $1.1-billion.

On Wednesday, Encana Corp. announced it was buying Eagle Ford oil and gas liquids assets from Freeport-McMoRan Copper & Gold Inc. for $3.1-billion (U.S.), though Sayer does not include outbound foreign deals in its tally.

The energy advisory firm pointed out that the current value of mergers and acquisitions already sits at 75 per cent of the $13.8-billion that the industry mustered in all of 2013.

The strongest year on record was 2012, when $55-billion of deals were done, including CNOOC Ltd.'s $15.2-billion (U.S.) takeover of Nexen Inc., Mr. Pavic said.

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Energy companies, meanwhile, are having a much easier time tapping the market for financing, which goes hand-in-hand with acquisition activity.

In the first quarter, the industry raised $6-billion, including $3.3-billion of equity and $2.7-billion of debt. Sayer pointed out that the total amount of capital raised last year was $15.9-billion, with 41 per cent of those financings done in the fourth quarter.

Bases on offerings so far, the sector is on track to raise $24-billion in 2014, it said. One big upcoming deal is Encana's initial public offering of its PrairieSky Royalty Ltd. unit, which could generate proceeds of up to $860-million for the natural gas producer. That deal is expected in the coming weeks.

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About the Author

Jeffrey Jones is a veteran journalist specializing in energy, finance and environment for The Globe and Mail’s Report on Business, based in Calgary. Before joining The Globe and Mail in 2013, he was a senior reporter for Reuters, writing news, features and analysis on energy deals, pipelines, politics and general  topics. More


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