Despite widespread anticipation that 2015 would see an increase
in oil and gas M&A and related financing activity, there turned
out to be significantly less activity in 2015 than there was in
2014, as crude oil prices remained below US$50/bbl and more
recently fell below US$40/bbl.
With few exceptions, oil and gas M&A activity was limited to
smaller and fewer transactions in 2015. Hostile acquisitions of
size were limited to Suncor's $4.1 billion hostile offer
for Canadian Oil Sands. Consensual acquisitions of size were rare
(with exceptions such as Crescent Point's $1.5 billion
acquisition of Legacy Oil + Gas and Whitecap Resources'
$500 million acquisition of Beaumont Energy) as agreements on
the relative valuations and on who the surviving management would
be remained difficult to achieve.
With the continuation of a low commodity price environment for
significantly longer than most oil and gas company boards of
directors and management teams hoped for and with highly
prioritized, or for many subsistence-level, capital programs and
slashed g&a budgets already implemented, pressure continues to
grow on the boards of directors and the management teams internally
and from lenders, potential merger partners and potential acquirors
Boards of directors are now frequently in the position of having
to respond to approaches at a significant premium to current
trading prices that 18 months ago would have been characterized as
a more than adequate change of control premium but which now, in
the context of historically (short term) low commodity prices, are
considered by the board or management to be opportunistic and
unreflective of true fair value. At the same time, the board
must be wary of the possibility that the company's shareholders
may be pleased to have the opportunity to accept the premium
Compounding the current low commodity prices in curtailing
M&A and related financing activity has been uncertainty in
numerous categories, including:
future commodity prices
governmental uncertainty federally with the recent election of
the Liberals and the potential impact of:
foreign investment review
climate change legislation
governmental uncertainty in Alberta with the election of the
NDP and the potential impact of:
climate change legislation
corporate tax increases
a more distant relationship with the business comunity
infrastructure limitations, including pipelines for market
access, impacted by:
the rejection of Keystone XL by President Obama
First Nations and environmental considerations in the
advancement of proposed projects
All in all, this creates a difficult context in which to
undertake M&A activity, domestically and in respect of
potential foreign players making capital allocations within their
global portfolios on a competitive basis with opportunities in
other jurisdictions in Canada, and incrementally in Alberta.
However, at least some of the uncertainty should be resolved in
early 2016, including with respect to climate change legislation
and Alberta's royalty review. At the same time, other drivers
will increase pressure on exploration and development and oilfield
service entities in 2016. It does not seem overly bold –
particularly in light of the minimal activity in 2015 – to
predict that oil and gas M&A and related financing activity
will increase in 2016.
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.
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