A recent report by the Royal Bank of Canada
reveals that lower oil prices may result in cuts to business
investment in the oil and gas industry which may have a chilling
effect on the M&A activity in this Canada's important
sector of economy.
Oil prices started to decline in June 2014. In the last six
months, WTI crude benchmark had fallen from above US$100 to below
US$50 a barrel; a drop of more than 50%. While historically OPEC
would support the falling oil price, this time it refused to do so
trying to preserve its market share by putting pressure on the
competitors producing oil from US shale deposits, the Alberta oil
sands and offshore projects.
RBC warned that reductions to oil-production investment are
"more certain to occur" than the positive, counteracting
forces of lower-priced crude. It is, therefore, expected that for
deals involving oil and gas assets there will be a pause in M&A
activity that will continue through at least the first part of
2015. During this pause buyers will wait to see if prices keep
falling before committing to acquisitions, while sellers will try
to avoid selling at the bottom of the cycle.
There are certainly players looking to invest their money in the
sector. For example, AltaGas has recently announced that it plans
to double its asset base over the next five years. Likewise, in
December, Veresen announced the formation of Veresen Midstream with
KKR and a $5 billion midstream expansion for Encana and
Overall, the RBC report said lower oil prices will have
significant (negative) impacts on budgets in oil-producing
provinces. But it argues these provinces—Alberta,
Saskatchewan and Newfoundland and Labrador—have seen big
increases in revenues from price increases in recent years, putting
them on relatively strong footing to absorb the shocks of a
prolonged decline. Other provinces, meanwhile, are seeing benefits
from the low crude prices in the form of cheap gasoline and the
falling Canadian dollar, which is creating a better climate for
their manufacturers and exporters.
The RBC analysis pointed to a combined effect of three
"offsetting positive outcomes" from low-priced oil: a
boost for the US economy; the lower Canadian dollar's benefit
to exporters selling to the stronger US market; and more spending
by Canadians thanks to cheaper fuel.
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global legal practice. We provide
the world's pre-eminent corporations and financial institutions
with a full business law service. We have more than 3800 lawyers
based in over 50 cities across Europe, the United States, Canada,
Latin America, Asia, Australia, Africa, the Middle East and Central
Recognized for our industry focus, we are strong across all
the key industry sectors: financial institutions; energy;
infrastructure, mining and commodities; transport; technology and
innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global
business principles of quality, unity and integrity. We aim to
provide the highest possible standard of legal service in each of
our offices and to maintain that level of quality at every point of
Norton Rose Fulbright LLP, Norton Rose Fulbright Australia,
Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South
Africa (incorporated as Deneys Reitz Inc) and Fulbright &
Jaworski LLP, each of which is a separate legal entity, are members
('the Norton Rose Fulbright members') of Norton Rose
Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein
helps coordinate the activities of the Norton Rose Fulbright
members but does not itself provide legal services to
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should be
sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Canada is a constitutional monarchy, a parliamentary democracy and a federation comprised of ten provinces and three territories. Canada's judiciary is independent of the legislative and executive branches of Government.
The Government of Alberta recently announced a number of policy changes that will impact the Alberta Electricity Market, composed of its generators, transmitters, distributors, retailers, electricity consumers and wholesale electricity market.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).