A recent report released by Deloitte announces that the number of Canadian deals in the energy sector has risen by 15% in the first half of 2014, compared with the same period in 2013.
The Deloitte Oil & Gas Mergers and Acquisitions Midyear 2014 Report offers an optimistic outlook for sector’s global deal activity, with Canada well positioned to benefit from the upswing.
Canada is at the centre of global deal activity
The global deal value in the energy sector has risen by 38%, to $141 billion this year, with Canada and the United States at centre of the activity, accounting for 61% of global transactions.
The Canadian Exploration & Production (E&P) deal count rose by 23%, with the focus trending towards more conventional sources, such as natural gas, and shifting away from the oil sands.
This good news comes despite the lack of positive progress on major proposed pipelines to connect Canadian producers with US and coastal markets. Canada’s oil producers have been struggling with delays in two major pipeline projects, the Keystone XL and the Northern Gateway, which would transport Albertan oil towards the southern US markets and the western coastal ports.
Deloitte suggests that the shift away from oil sands deals may also be due to rising costs and increasing environmental regulation, resulting in challenging returns. Nevertheless, Canada remains an attractive jurisdiction for foreign investors, in part because it is free from the export restrictions present in the United States.
The global energy deal market may be on the rebound
Although companies are still focusing on the organic growth and cost containment strategies responsible for a slowdown in deal activity in 2013, second quarter 2014 data suggests they are also seeking to acquire new resources.
The temptation to sell off oil assets has largely been curtailed by the price of oil remaining high, but natural gas prices have remained stable and may continue to entice buyers who are looking to diversify their portfolios.
What’s more, private equity is continuing to eye the oil and gas sector in 2014, focusing particularly on the oilfield services and midstream sectors. With interest rates forecast to remain low, buyers may be able to access additional sources of capital through stock appreciation.
Overall, the outlook is encouraging and Deloitte projects that Canada and the United States will continue to drive investment throughout the value chain for the foreseeable future.
The author would like to thank Carole Gilbert, articling student, for her assistance in preparing this legal update.