Canadian oil, gas reserves' acquisition price hits record in 2003

The median acquisition price for Canadian oil and natural gas reserves reached a record high for the fourth consecutive year, increasing 12% to $9.33 (Can.)/boe in 2003 from $8.31/boe in 2002.

March 8, 2004

3 min read

By OGJ editors

HOUSTON, Mar. 8 -- The median acquisition price for Canadian oil and natural gas reserves reached a record high for the fourth consecutive year, increasing 12% to $9.33 (Can.)/boe in 2003 from $8.31/boe in 2002. According to Sayer Securities Ltd., this peak price was the highest recorded since the Calgary-based finance and research firm began publishing merger and acquisition data in 1988.

Over the last 5 years, Sayer reported, the median price for established reserves—proven plus one-half probable reserves, before royalties—rose to $9.33/boe in 2003 from $4.83/boe in 1999. Sayer noted that high commodity prices, especially for natural gas, were the most "obvious influence" on acquisition prices over this time period.

Another factor contributing to the high-priced acquisitions in 2003, Sayer said, was "the low level of assets and companies for sale as measured by the small amount of activity." The firm noted that, in 2003, the total enterprise value of M&A deals was $9.1 billion—the lowest value since the $7.1 billion total in 1994.

"This low activity was not due to lack of demand," Sayer observed. "In 2003 there were 135 large transactions (over $5 million in size) compared to 143 in 2002. This suggests demand was still strong in the M&A market in 2003."

Also contributing to the "lower dollar numbers" for M&A activity last year was the scarcity of multibillion dollar deals, Sayer continued. In 2002, for example, deals such as the $15.9 billion merger of Pan Canadian Energy Corp. and Alberta Energy Co. Ltd. highlighted M&A activity. If this deal were removed from that year's statistics, the total M&A value was $9.5 billion, or just 4% higher than the value in 2003.

RITs
One "constant" over the last several years, Sayer said, has been the "strong presence" of royalty income trusts (RITs) in the M&A market. In 2003 RITs completed $4.5 billion in acquisitions, or about half of the total. In 2002, RITs took part in $3.4 billion worth of M&A deals.

One of the largest RIT deals completed in 2003, Sayer noted, was Canadian Oil Sands Trust unit Canadian Oil Sands Ltd.'s purchase of Calgary-based EnCana Corp.'s 10% interest in the Syncrude oil project for $1.07 billion (OGJ Online, Feb. 4, 2003).

"The strong presence of RITs in the M&A market is partly driven by the competitive advantage they possess over the rest of the industry. For instance RITs as a group traded at an enterprise value/boe/d of approximately $51,400 boe/d at the end of 2003. As a group in 2003 RITs purchased assets and companies at a median price of $30,516 boe/d," Sayer reckoned.

"RITs were trading at a 68% premium to what they were acquiring assets and companies for," Sayer said. "The price being paid by everyone else in the industry in 2003 was $24,273 boe/d, a 20% discount from the RIT market."