Author: Mark Young

Canadian Upstream Oil & Gas M&A Finally Takes Off Again in June 2016

In June 2016, the total value of announced M&A deals in the Canadian E&P sector totalled Cdn$2.7 billion, according to CanOils’ new report that looks at all upstream deals involving Canadian E&P companies in June. This resurgence in value comes on the back of an upward trending WTI oil price that surpassed US$50 per barrel during the month.

Despite the fact that June saw Canada’s biggest upstream deal in the first six months of 2016, the overall deal value of Cdn$2.7 billion was widely dispersed; there were seven deals during the month for over Cdn$100 million in value. For context, the last time this number was reached during a calendar month was in September 2014, which was a time before OPEC stopped supporting the oil price and oil was trading for over US$90 per barrel.


Source: CanOils Oil & Gas M&A Review June 2016

Top 5 Deals Announced in June 2016 in Canadian E&P Sector


Source: CanOils Oil & Gas M&A Review June 2016 (Includes deals in Canada only)

Penn West Petroleum Ltd.’s (TSX:PWT) sale in Saskatchewan was the biggest deal to be agreed for Canadian assets in the first six months of 2016 and was a continuation of the trend of private equity backed companies making large acquisitions in recent times. Teine Energy Ltd, the acquirer in the deal, is funding the deal through its own credit facilities and also through significant backing from the Canada Pension Plan Investment Board.

Encana’s (TSX:ECA) deal to sell some northwestern Alberta assets follows two major asset sales by the company in the U.S. as the company looks to streamline its portfolio, while Athabasca Oil Corp. (TSX:ATH) fresh off closing its merger in the Duvernay and Montney shale plays with Murphy Oil Corp. (NYSE:MUR) last month, has become the latest of many Canadian E&P companies to make a royalty sale.

Full analysis of all the deals listed here and every other deal story involving a Canadian E&P company in June 2016 is available in the report, along with a detailed look at every asset put up for sale in a public listing.

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Why You Should Examine Debt Levels to Predict Next Oil & Gas M&A Mega Deal

If I had to lay odds on which E&P powerhouse is going to secure the sector’s next major corporate acquisition I’d start by examining their ability to absorb substantial levels of debt while still keeping debt-to-capital ratios in balance.

Sightings of large corporate mergers have been rare during the commodity price downturn. During that time, the number of companies with high debt-to-capital ratios has soared. To help understand which oil giants have the financial clout to pull together a major M&A deal, we’ve shortlisted those with the greatest ability to assume debt and remain “healthy”.

For More: JWN Webinar Series – Review of Recent Transactions: Where is Money Being Spent and Why

Companies with greatest debt capacity as of Q1 2016

By assigning an arbitrary debt-to-capital ratio of 35% as “healthy” you can see which companies are currently able to assume the most extra net debt for a corporate acquisition either in Canada or internationally, and still keep debt levels in check. For example, Tourmaline Oil Corp. (TSX:TOU) would be able to assume Cdn$799 million extra net debt in any acquisition in this model, based on its Q1 2016 balance sheet, before its debt-to-capital ratio exceeded 35%.


Source: Evaluate Energy & CanOils, Q1 2016 Financial Data

Of course, this doesn’t necessarily mean these companies will seek a merger deal. But if they do, they’ll have plenty of capacity for additional debt assumption.

More details on this can be found in the webinar I delivered last week, which can be viewed here.

Why is debt important to consider NOW?

It’s true that the general capital profile of an upstream oil and gas company has, on the whole, changed dramatically since the price downturn began. Looking at U.S. and international companies that report to the SEC as well as every TSX company, we can see a general increase in risk since last year by looking at those debt-to-capital ratios. The findings are intriguing:


Source: JWN Webinar Series – Review of Recent Transactions: Where is Money Being Spent and Why

In 2015, debt was a much greater proportion of their entire capital structure than 2014. That’s hardly a major surprise given the downturn. Some companies even moved into a negative equity position in 2015, as pressures from a longer period of low commodity prices mounted.

Analysis: Biggest corporate deals of the downturn

The highest profile global corporate merger during the downturn was undoubtedly Royal Dutch Shell’s (LSE:RDSA) acquisition of BG Group for around US$81 billion. In Canada, it was Suncor Energy’s (TSX:SU) Cdn$6.6 billion acquisition of Canadian Oil Sands Ltd. (COS) to become the largest stakeholder in the Syncrude project.

Both deals had a lot in common: a large issuance of stock in the acquiring company to the target, as well as the assumption of significant debt.

  • Royal Dutch Shell, as well as 383 UK pence per share, offered 0.4454 B shares in the company to BG, and took on just shy of US$10 billion in debt according to BG’s annual 2015 statements.
  • Suncor issued 0.28 shares in the company to COS in consideration for the acquisition and also assumed Cdn$2.4 billion in debt, according to press announcements.

June 2016 has also seen a couple more deals in Canada that follow this debt assumption pattern.

  • Raging River Exploration Inc. (TSX:RRX) has agreed to acquire Rock Energy Inc. (TSX:RE) in a deal where debt assumption of Cdn$67 million makes up 61% of the total deal consideration.
  • Gear Energy Ltd. (TSX:GXE) will be acquiring Striker Exploration Ltd. (TSX-V:SKX) in a deal worth around Cdn$66 million by issuing 2.325 Gear shares for every Striker share as well as assuming Striker’s Cdn$10 million in debt. (see note 1)

It’s this ability to assume debt and still remain healthy that we think is crucial in identifying those most likely to take on a big corporate merger in the near future.

Both Suncor and Royal Dutch Shell appear in our above list of companies with high debt capacity. Suncor has been linked to more acquisition activity in press reports, while Shell has not – having actually been linked with more asset sales than purchases. In fact, rumours came out of the company that Shell assets were going to hit the market in ten countries worldwide in the not-too-distant future.

Of the other companies listed with greatest debt capacity, many have been selling high-value royalty assets in Canada to bolster their activities with significant cash through the downturn, while the international list includes some of the world’s biggest and most powerful companies.

With companies also having put copious funding into cost controls in recent times and oil prices starting to trend upwards a bit, we might just be around the corner from one of the companies on this list making the world’s next big corporate merger in the E&P sector and we should expect it to include the significant assumption of debt.



1) To value all acquisitions where stock is used as part of the consideration, Evaluate Energy and CanOils always use the day prior share price. Sometimes companies use a deemed stock value or a weighted average price in their press announcements to value the stock, but for comparability reasons, we always use the same method for every deal. This may create some slight discrepancies between our data and announced deal values. Gear valued its acquisition of Striker based on its concurrent bought deal financing, rather than its trading share price, and reported a value of Cdn$63.7 million.

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Energy CEOs back UK to “Remain” in Europe

Chief executives at three of the top four UK oil and gas producers have publicly backed the campaign to keep the UK within the European Union.

In a decision that could have major global trading ramifications, UK citizens began voting earlier today in the historic referendum to determine whether they want to remain part of the EU. Voting closes at 10pm UK time (5pm EDT, 3pm MDT)

CEOs at Anglo-Dutch Royal Dutch Shell, BP Plc. and France’s Total showed their public support for the Remain campaign earlier this week. They featured in media outlets in a list of 1,280 prominent business leaders urging the British public not to “Brexit”, together with executives from Centrica plc and smaller producers active in the UK such as EnQuest plc, ENGIE, MOL and BHP Billiton. Combined, the energy executives on the list of Remain supporters control approximately 510,000 boe/d of UK North Sea production.

Speculation has been rife from campaigners on both sides of the EU debate over the geopolitical and economic consequences should the UK “Brexit.” The value of the GBP pound has fluctuated significantly in recent times on the back of referendum campaign messaging (much of it negative in nature), as well as speculation over the economy post-referendum and opinion polls showing how tight the vote could be.


Source: Evaluate Energy


  • Royal Dutch Shell reported 103,000 boe/d itself and then assumed 97,000 boe/d in its acquisition of BG Group Plc, which closed post-year end, resulting in its estimated total of 200,000 boe/d in the above chart.
  • “Other” in the chart includes three companies: France’s ENGIE (formerly GDF Suez), Hungary’s MOL (both 5,000 boe/d) and Australia’s BHP Billiton (3,000 boe/d)
  • China’s CNOOC Ltd., the second biggest producer on the list after its 2013 acquisition of Nexen Inc., was not represented in the list of 1280 companies, but it’s stance on the UK referendum is unknown.

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Canadian Upstream M&A Reaches Cdn$880 Million in May 2016

Data from CanOils’ latest M&A report shows that the total value of announced M&A deals in the Canadian E&P sector totalled Cdn$880 million in May 2016. The report is available for download now. Although this value falls short of the average monthly deal aggregate of Cdn$1.5 billion since the price downturn began, what bodes well is that this month’s total is spread across a few deals worth over Cdn$50 million as opposed to previous months where one large deal often dominated the total. Notable deals this month include Husky Energy Inc.’s (TSX:HSE) disposal of Saskatchewan assets to Whitecap Resources Inc. (TSX:WCP) and royalty assets to Freehold Royalties Ltd. (TSX:FRU) and Spartan Energy Corp.’s (TSX-V:SPE) acquisition of privately-held Wyatt Oil + Gas Inc..

This new M&A report delves into every deal story involving a Canadian oil and gas company in May 2016, using data from the entire CanOils database.


Source: CanOils M&A Database

Husky Makes Two Significant Asset Sales

Husky Energy Inc. made the most headlines in the Canadian M&A space this month, agreeing the two biggest deals of the month. Whitecap Resources Inc. will acquire assets in southeast Saskatchewan for Cdn$595 million, while Freehold Royalties has completed the Cdn$165 million acquisition of some royalty production in Saskatchewan and the Deep Basin.

Map of Husky Energy Wells and Land being Acquired by Whitecap Resources


Source: CanOils AssetsClick Here for Map Legend

Both of these deals are analysed in detail in the new CanOils monthly M&A review for May 2016.

Also included in the report:

  • Whitecap’s recent deal history and detailed analysis of the company’s equity financings
  • Arsenal Energy agrees to sell its properties  in the United States
  • Murphy Oil completes joint venture arrangement with Athabasca Oil Corp.
  • 15,000 boe/d of domestic Canadian production put up for sale in May, including Connacher Oil & Gas’ SAGD operations
  • A round up of all the deal stories impacting Canada’s oil and gas industry in May


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The Cost of Producing Oil & Gas in Canada

CanOils and JWN are pleased to announce the release of their latest, jointly-produced report that looks at the full supply cost of producing oil and gas in Canada. The report looks at the cost structures of TSX-listed intermediate, junior and international producers in 2014 and 2015 and is available to download now at this link:


Inside this 50-page report:

  • In-depth analysis of intermediate, junior and international TSX-listed companies’ full supply costs
  • Operating, transportation, G&A, F&D, interest and royalty expenses per barrel metric analysis across all three peer groups
  • Insight into how costs have changed year on year and the savings made during the downturn
  • A detailed look into the full supply costs for the Montney and Marcellus shale plays

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Canadian Upstream M&A Tops Cdn$1bn in April 2016

In April 2016, the total monthly value of M&A deals in the Canadian E&P sector was over Cdn$1 billion for the first time in 2016, according to analysis in CanOils latest monthly M&A report

This is almost entirely due to Suncor Energy Inc. (TSX:SU) agreeing the biggest deal of the year so far to further increase its stake in the Syncrude oilsands mine by an extra 5% for Cdn$937 million. Suncor, of course, had already completed the Cdn$6.6 billion acquisition of fellow Syncrude partner Canadian Oil Sands Ltd., which was the biggest Canadian E&P deal to be announced in 2015.

Aside from Suncor however, the Canadian E&P space saw a continuing lack of deals in April 2016. In fact, only three new deals were announced for Canadian E&P assets all month that had a value of over Cdn$1 million. The low price environment is still holding back activity, with companies struggling to find buyers for assets they have put up for sale.


Inside this month’s report: 

  • Suncor Energy further increases its stake in Syncrude in Cdn$937 million deal
  • Syncrude Project deal and historic implied value analysis
  • Penn West Petroleum completes its Slave Point asset sale
  • Parex Resources agrees farm-in deals with Colombia’s Ecopetrol
  • Only 2,500 boe/d of domestic Canadian production put up for sale
  • A round up of all the deal stories impacting Canada’s oil and gas industry in April

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Cdn$347 Million of E&P Deals in Canada in March 2016

Analysis in CanOils’ new report “Upstream Oil & Gas M&A in Canada Reaches Cdn$347 Million in March 2016” shows that while March 2016 saw the lowest monthly deal value for domestic Canadian E&P assets since mid-2015, there was a distinct increase in M&A activity involving internationally-focused Canadian companies.

Domestic deal value has been low since 2016 began; the combined total values of newly announced domestic Canadian E&P deals in January, February and March 2016 do not reach the total of Cdn$1.35 billion of December 2015 alone.

Download the CanOils review of March 2016’s most significant deals involving TSX and TSX-V listed E&P companies here.


Source: CanOils M&A Review March 2016 – “Upstream Oil & Gas M&A in Canada Reaches Cdn$347 Million in March 2016

Highlights – March 2016

  • The biggest deal on the domestic front in Canada from March saw Penn West Petroleum Ltd. (TSX:PWT) continue its divestiture programme with the Cdn$148 million sale of its Slave Point assets. The company also agreed Cdn80 million-worth of non-core asset sales in March 2016, bringing its total asset sales since January 2015 up to over Cdn$1 billion.
  • Outside of Canada, there was more deal activity in March 2016. The biggest deal involving a Canadian-listed company in March 2016 saw a group of Chinese investors agree to acquire Bankers Petroleum Ltd. (TSX:BNP) for Cdn$638 million including debt. The company is mainly focused on the Albanian E&P industry and produces over 18,000 boe/d.
  • In all, Canadian-listed companies were involved in M&A-related stories in 13 different countries around the world this month.
  • Over 23,000 boe/d was put up for sale this month, including assets owned by Harvest Operations Corp., NEP Canada ULC and Questfire Energy Corp. (TSX-V:Q.A)

Full details on all of the biggest deals and M&A stories, including all Canadian E&P assets put up for sale in March, detailed analysis on the Penn West Petroleum asset sales and the Chinese acquisition of Bankers Petroleum, are provided in the CanOils M&A Review for March 2016.


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Private Companies Dominate U.S. Upstream M&A in Q1 2016

New analysis in Evaluate Energy’s M&A Review for Q1 2016 shows that privately held companies had a huge impact on the United States’ upstream oil and gas industry in recent months. While the biggest deal in the U.S. involved two public companies – Dominion Resources Inc. (NYSE:D) agreed to acquire Questar Corp. (NYSE:STR) for US$6 billion – the next biggest deals all involved a public company selling assets to a privately-held acquirer. In total, U.S.-based private companies were the acquirers in US$3.5 billion worth of asset and corporate deals in the U.S. during Q1 2016, a figure that also stands out because the total value of newly announced E&P deals by all companies worldwide was only US$18.5 billion.


The largest deal involving a private acquirer for E&P assets in the United States during Q1 2016 was a US$910 million sale by WPX Energy Inc. (NYSE:WPX). To help reduce its substantial debt position, which stood at around US$3.1 billion at the end of 2015, the company sold its Piceance Basin assets in Colorado in an all-cash deal to Terra Energy Partners LLC. The assets currently produce around 500 mmcfe/d and cover 200,000 net acres. The sale will leave WPX with its positions in the Delaware Basin, the Williston Basin and the San Juan Basin to focus on moving forwards. The company also made a significant US$309 million gathering system midstream sale in the San Juan Basin this quarter to further bolster its debt-reduction strategy. Terra Energy Partners LLC, the acquirer of WPX’s Piceance Basin assets, is a private exploration and production company formed to pursue the acquisition and development of large, long-life producing oil and gas assets in North America. It is funded by equity commitments from Kayne Private Energy Income Fund and Warburg Pincus.

Another large private company deal involved Dallas-based Covey Park Energy LLC, which announced a US$420 million acquisition of EP Energy Corp.’s (NYSE:EPE) Haynesville and Bossier shale gas assets that are located primarily in Louisiana. EP Energy recorded nearly US$5 billion in long term debt in its 2015 annual results and this deal presumably is targeted at reducing that figure. Other multi-million deals by private acquirers in the U.S. saw Chesapeake Energy Inc. (NYSE:CHK), Concho Resources Inc. (NYSE:CXO) and ConocoPhillips (NYSE:COP), among others, sell off assets in Q1 2016. More details on the largest private company deals in the United States, as well as a full review of the biggest and most significant deals in the U.S., Canada and around the world, can be found in Evaluate Energy’s review of global E&P deals for Q1 2016.

Top 5 Upstream M&A Deals in the U.S. During Q1 2016 Involving a Privately-Held Acquirer

Source: Evaluate Energy Report: Global Upstream Oil & Gas M&A Reaches Just $18.5 billion in Q1 2016″ 


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Global Upstream Oil & Gas M&A Reaches Just $18.5 billion in Q1 2016

Analysis in Evaluate Energy’s new M&A report shows that Q1 2016 saw the lowest number of newly announced M&A deals in the global upstream oil and gas sector – 157, excluding licensing rounds – take place than at any time during the price downturn. The previous lowest number of deals was recorded a year earlier in Q1 2015 and Q1 2016’s deal count was 11% lower than that. Low commodity prices are continuing to cause a lack of confidence in the M&A market, but with oil prices increasing – WTI averaged US$4.20 higher in March than in February 2016 – activity may pick up in Q2.

While the deal count was low, Q1 2016’s combined total deal value in the upstream sector of US$18.5 billion was also among the lowest quarterly values in recent times. It would have been even lower, had it not been for a number of high value deals that bolstered the total considerably. Dominion Resources Inc. (NYSE:D) agreed to acquire Questar Corp. (NYSE:STR) for US$6 billion in this quarter’s biggest deal and Rosneft made two multi-billion dollar asset sales in Siberia to a group of Indian E&P players.

The quarter’s biggest deals in the U.S., Canada and around the world are analysed in detail in this report, which can be downloaded here.

Source: Evaluate Energy Report: Global Upstream Oil & Gas M&A Reaches Just $18.5 billion in Q1 2016″ 

Top 10 Upstream M&A Deals During Q1 2016

Source: Evaluate Energy Report: Global Upstream Oil & Gas M&A Reaches Just $18.5 billion in Q1 2016 

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Were Canadian Oil & Gas Companies Able to Raise Finance in 2015 and 2016?

New analysis from CanOils has shown that while the total value of Canadian oil and gas company financing arrangements being completed has fallen since the commodity price downturn began in late 2014, companies have still been able to raise finance.

Looking at all TSX and TSX-V listed oil and gas companies that produced between 0 and 100,000 boe/d in their most recently released operational results, we can see that in the past year around Cdn$8.6 billion in gross proceeds (see note 1) has been raised between 2015 and 2016 (see note 2) in one of two ways:

  • Equity Financing – The raising of funds through the sale of company stock, either in the form of common shares, warrants or a combination of units.
  • Debt Financing – The raising of funds through the initiation of a loan agreement or note offering. Excludes drawings on revolving credit facilities.

Source: CanOils Financings – Note: Q1 2016 represents the value of all equity and debt financing deals that completed between January 1, 2016 and March 21, 2016, which was the time of writing. A senior producer is a company that produced over 100,000 boe/d in Q4 2015.

This Cdn$8.6 billion total is of course much lower than the 2014 total of Cdn$13.0 billion and there was a steep drop in finance raised from Q2 2014 to Q1 2015. While the price downturn is the main instigator of this drop in finance being raised, these numbers themselves do not give any idea whether the drop is due to companies being unable or unwilling to source extra finance. In all likelihood, it is probably a combination of both. Companies might have seen it as a tough prospect to approach a bank for a loan outside of its existing credit facilities or to successfully issue new shares in a struggling marketplace at lower prices and not moved ahead with any such plans. Equally, if companies did try and get a new loan from a bank, it may have been refused – something that would be unlikely to ever reach the public arena.

One thing that is clear from the chart above, however, is that when finance was raised in 2015 and in 2016 so far, it would come increasingly through an equity-based arrangement rather than debt.


Source: CanOils Financings – Note: Q1 2016 represents the value of all equity and debt financing deals that completed between January 1, 2016 and March 21, 2016, which was the time of writing. A senior producer is a company that produced over 100,000 boe/d in Q4 2015.

Right up until the end of Q3 2015, it was almost a 50/50 split between debt and equity financing agreements to raise funds. There were less equity and debt financings (in terms of value) between the end of Q2 and Q3 2015, but from this point on, the companies that produced between 0-100,000 boe/d stopped raising finance through debt-based deals almost entirely. Only Cdn$300 million of new debt financings were agreed between the end of September and March 21, 2016. In contrast, the rate of equity deals did not slow at all, being completed at roughly the same rate as they did between Q2 and Q3 2015; Cdn$1.8 billion of new equity financings completed between the end of September and March 21, 2016, resulting in a steady average of Cdn$790 million of new deals between the end of Q2 2015 and March 21, 2016.

Reasons for Financings

While it is not possible to tell from the data whether the drop in financings following the price downturn was primarily down to companies being unable or unwilling to raise finance, we can see the key use of proceeds from finance raised in 2015 and 2016.

Source: CanOils Financings – Note: Q1 2016 represents the value of all equity and debt financing deals that completed between January 1, 2016 and March 21, 2016, which was the time of writing. The data only includes equity and debt financing deals for companies producing between 0 and 100,000 boe/d as of Q4 2015 or Q3 2015, depending on the latest available report for each company as at March 21, 2016.

CanOils Financings provides the principal reason behind every financing that completes and repaying debt was perhaps unsurprisingly the main motivational factor behind most deals in 2015 and 2016. Cdn$4.4 billion – over half of the total Cdn$8.6 billion raised – of the finance raised in 2015 and 2016 was primarily used to pay off debt. Again, unsurprisingly, with capital expenditure budgets slashed across the board and companies focusing on sustaining operations rather than development, finance being raised to fund capital spending was low at Cdn$1.3 billion in 2015 and 2016. Capex funding did increase in Q1 2016, with Cdn$328 million raised for this purpose, more than Q3 and Q4 2015 combined, but this is nearly all from one deal completed in February by Seven Generations Energy Ltd. (TSX:VII) for Cdn$300 million.

There was a significant amount of cash (Cdn$2.2 billion) raised to fund acquisitions and pay off the debt included in those acquisitions (see note 3). Opportunistic, cheaper-than-usual acquisitions have been a symptom of the price downturn, where confident or stronger companies have picked up an entire debt-laden smaller company in cut price deals or boosted core asset positions with a cost-effective purchase of a struggling company’s non-core assets.

Top 10 Financings Between January 1, 2015 and March 21, 2016

Source: CanOils Financings

Download our Brouchure


1) All figures here for finance raised refer to gross proceeds. This is the amount raised in the financing, before any deduction of underwriters’ fees or general expenses related to the financing deal, as these costs are not routinely provided for every deal.

2) This article includes all financings completed from January 1, 2014 up to and including March 21, 2016, which was the time of writing. This article does not contain any data related to drawings on credit facilities, nor financings that have been announced but not finalised.

3) If finance was raised to pay off debt involved in a corporate acquisition, the principal reason for the financing is listed as “Acquisition” rather than “Debt Repayment” in CanOils. This is for the simple reason that without the acquisition in the first place, there would be no debt to repay.

4) The companies included in this article have been chosen based on the fact that they produced between 0 and 100,000 boe/d in their most recent report, typically Q3 2015 (September) or Q4 2015 (December), depending on the company. Any company that produced under 100,000 boe/d in Q2 2014, for example, but now produces over 100,000 boe/d, is excluded throughout.

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