The financial stress caused by low oil prices from plummeting fuel demand during the COVID-19 pandemic will result in a wave of Canadian energy mergers and acquisitions — but not until after the world begins to return to normal, observers say.
Benchmark U.S. oil prices so far this year have ranged from over US$61 per barrel in early January to less than zero on April 20 and the uncertainty has resulted in a very quiet marketplace, said Tom Pavic, president of M&A firm Sayer Energy Advisors in Calgary.
“Because there’s so much volatility, it’s very difficult to get buyers and sellers together. Times like these where commodity prices are volatile, those are the worst times for us to get deals done,” he said.
“I think once you see a little bit of certainty or stability in commodity prices, especially for oil, when we know what the new normal is, that will start some activity on the M&A front.”
The quiet start to 2020 will likely translate into activity falling below the $8 billion in enterprise value of Canadian oil and gas transactions in 2019, a year that was 34 per cent lower than the $12.1 billion recorded in 2018, he said.
Many oil and gas producers probably wouldn’t be cash flow positive at current future commodity contract prices, which makes it difficult to assess what their fair market value really is, he added.
The largest Canadian oilpatch transaction in 2019 was Canadian Natural Resources Ltd.’s acquisition of Devon Canada Corp.’s oilsands and heavy crude assets for about $3.8 billion. The company, one of the most active acquirers in recent years, bought most of Royal Dutch Shell’s oilsands assets in 2017.
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