On Monday, Whitecap Resources (TSX:WCP) announced that it had
agreed to buy a number of oil and gas properties from Imperial Oil
Ltd. (TSX:IMO) for $855 million. This transaction comes on
the heels of renewed M&A activity in the energy sector. According to the Globe and Mail, this deal
"pushes the industry's tally for merger and acquisition
activity for the quarter to $7-billion, nearly 10 times the total
for the first three months of 2013".
There are a number of reasons for this turnaround, including a
rebound in Canadian energy prices. This is in part due to the fact
that the discounts that had been previously applied to oil prices,
on account of oil transportation bottlenecks, have narrowed as
companies have begun to rely more heavily on rail as well as new
pipeline capacity that has been created.
The upsurge in M&A activity is also due to a rise in
investor confidence. This is evident by the fact that many of the
recently announced energy sector acquisitions are backed by
successful equity financings. In the Globe and Mail article,
Ryan Ferguson Young, manager, corporate advisory at Sayer Energy
Advisors notes, "[t]here is way more positive investor
sentiment in the industry, so more capital is being thrown to the
industry – it's definitely improved commodity prices and
the general perception that the industry is on a rebound."
Whitecap, for instance, issued $500 million in subscription
receipts to help fund the acquisition. It's this seemingly
newfound access to capital that, according to Mason Granger, an oil and gas
fund manager with Toronto-based Sentry Investments, fast-tracked
M&A activity in the energy sector: "Going back to 2011,
2012 and the first half of 2013, that was a pretty tough time for
energy stocks. But we saw signs of life at the end of last year,
and financing activity picked up markedly in the second half of
2013, which I viewed as an important precursor of M&A (merger
and acquisition) activity this year."
After a lacklustre 2013, the energy sector's boost in
M&A activity in 2014 has left those in the oilpatch hopeful for
sustainable growth. It is also welcome news for companies in other
sectors, as there are consistent views that the energy sector will
be the driver behind increased M&A growth in other markets.
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