By an Online Correspondent
CALGARY, Sept. 25 -- A spate of takeover deals has made Canadian independents with significant natural gas and land positions an endangered species.
Sayer Securities Ltd., Calgary, an investment firm specializing in oil industry merger and acquisition (M&A) activity, said the first half saw the highest dollar value in deals in the past decade -- more than 70 M&A deals totaling $21 billion (Can.). The amount was swelled by several multi-billion-dollar takeovers of large Canadian independents by US firms.
A Sayer report said higher natural gas prices in the first half were a factor, as well as increased buying by US firms and acquisitions by royalty income trusts (RITs). A weak Canadian dollar and undervalued energy stocks also made some independents tempting targets.
The average value of a takeover in the first half was $233.7 million, almost double the $123.4 million in the first half of 2000 and compared with $29.7 million in the first half of 1999. In the first half of this year, US firms accounted for 54% of the Canadian M&A market, spending of $11.4 billion for companies and individual assets.
Major deals which increased the M&A total in the first half included the Conoco Inc.'s purchase of Gulf Canada Resources Ltd. for $6.9 billion, Anadarko Petroleum Corp.'s acquisition of Berkley Petroleum Corp. for $1.2 billion, and Calpine Corp.'s purchase of Encal Energy Ltd. for $1.4 billion. The Gulf-Conoco deal in June was the largest dollar value takeover of an exploration company recorded in the Canadian oil industry.
RITs accounted for $5.3 billion in M&A activity in the first half 2001. Deals included the mergers of Canadian Oil Sands Trust with Athabasca Oil Sands Trust and Enerplus Resources Fund with EnerMark Income Fund, each worth about $1.97 billion. Fourteen other deals involving RITs had a dollar value of $1.8 billion.
Sayer Securities said the median acquisition price for 2001 rose to $10.53/boe, with gas converted to oil on a 10:1 ratio, from $6.44 boe in the first half of 2001. The median price for gas in first half 2001 increased 91% over first half 2000, while the median price for oil increased only 34%.
A sharp decline in gas prices helped produce a hiatus in M&A activity over the summer. But in September Devon Energy Co. of Oklahoma City took over Anderson Exploration Ltd. for $7 billion.
Sayer Securities Pres. Frank Sayer said lower M&A prices had been expected because of a decline in gas prices. �Maybe it�s just a one-off deal and Devon is buying for strategic reasons for too high a price. One transaction does not make a trend,� Sayer said.
Bill Gwozd, gas services manager for Ziff Energy Group, Calgary, said companies anticipate strong long-term natural gas demand.
"I would suggest that they are looking at the longer-term strategic position. Where are gas prices going to be 2, 3, and 5 years from now?" he said.
"Companies bought land at sales in the Fort Liard region (of the Northwest Territories) in the mid-1990s when the price of gas was under $2. Firms venturing that far north had to think that gas prices would be adequate and had to have a long-term vision. So it is the same thing today and producers have to have a long-term vision."
Greg Stringham, vice-president of the Canadian Association of Petroleum Producers, note that in the late 1970s, before price deregulation, about 74% of Canadian production was under foreign control. He said that figure is now about 45% and the Canadian oil industry remains viable with more than 500 large and small firms.