Canada’s Oil Patch On Track For Biggest M&A Wave In A Decade
Southeast Asia Keeps Building Gas Plants Despite Hormuz LNG Shock Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.
Nearly a decade ago, the Canadian Oil Patch recorded a major asset sale and consolidation wave as oil majors exited the oil sands in favor of higher margins in U.S.
shale oil as well as environmental concerns amid the ESG investing craze.
To wit,Shell Plc(NYSE:SHEL)soldthe majority of its oil sands interests toCanadian Natural Resources Ltd.
(NYSE:CNQ) in 2017 a transaction valued at roughly $11.1 billion CAD ($8.5 billion USD), whileCenovus Energy(NYSE:CVE)acquiredmost ofConocoPhillips'(NYSE:COP) Canadian assets for C$17.7 billion (approximately US$13.2 billion).
And now a similar dynamic is unfolding across Canada’s energy sector: Canada’s oil patch has recorded over $30 billion in mergers and acquisitions so far in the current year, with Wall Street projecting that this year’s final tally will surpass the $53 billion recorded in 2017.However, this year’s M&A wave is fundamentally different from its 2017 peer since it’s mainly being driven by high oil and asset prices amid the Middle East conflict rather than a desperate attempt to dispose off distressed assets, “Whereas recently, we’ve seen a lot of clients merging from positions of strength, because it’s the best outcome for shareholders at the time,” Raj Singh, CEO at Calgary-based Fuelled Inc., told the Financial Post.
“That’s a healthier dynamic, and it tends to produce more durable combinations.” So far, this year’s key highlight has been Shell’s takeover of Arc Resources for $16.4 billion as the Dutch major looks to boost its depleted energy reserves, secure low-cost production and insulate its global liquefied natural gas (LNG) supply chain from the Middle Eastern fallout.
Prior to the acquisition, Shell facedan existential threat, with an estimated reserve life of just 5.3 years--well below the 10-year industry benchmark for European supermajors.
ARC Resources immediately adds 370,000 barrels of oil equivalent per day (boe/d) to Shell’s output, improving its projected annual production growth rate from 1% to roughly 4% through 2030.
Related: Saudi Arabia Restarts East-West Oil Pipeline To sweeten the deal further, ARC Resources is a premier, pure-play producer in Western Canada’s natural-gas-heavy Montney Basin, while Shell owns a 40% operating stake in the massiveLNG Canadaexport facility in British Columbia.
By absorbing ARC, Shell effectively integrates its supply chain, securing the upstream gas needed to feed LNG Canada and paving the way to greenlight a Phase 2 expansion that could double the facility's size.
Finally, whereas ARC is heavily focused on natural gas, roughly 40% of its output (and 70% of its underlying economic value) comes from high-margin oil and condensate liquids, with the asset mix increasing Shell’s exposure to low-cost, long-duration liquids.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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