Canada bucks global slump in oil & gas deals: report

Canada's oilsands bucked a recent global slowdown in fossil fuel deals, says a new report blaming market uncertainty amid volatile commodity prices.

Evaluate Energy says US$89 billion in new upstream deals were recorded globally in 2022. That's the lowest figure since the London-based data firm began merger and acquisition coverage in 2008.

"Aside from a lack of major mergers, 2022's total can be attributed to a dramatically widened gap between buyer and seller valuations," the report's authors wrote. "Oil prices accelerating past US$100 per barrel following Russia's invasion of Ukraine was a key factor."

Evaluate Energy says deal counts fell to their lowest in the post-COVID vaccine era. In the fourth quarter of 2022, M&A totalled US$20 billion in the global upstream oil and gas sector, a 36 per cent decline from the previous three-month period. During that time, the price of West Texas Intermediate (CL=F) crude averaged US$82.79 per barrel, down from US$93 in Q3, and US$109 in Q2.

"The total even ranks lower than pandemic-hit 2020, which saw its total boosted by a number of high-value corporate mergers, such as ConocoPhillips acquiring Concho Resources and Chevron acquiring Noble Energy for $13 billion apiece," the authors wrote.

The vast majority of Q4 M&A deals were in the United States and Canada, accounting for 81 per cent of the total quarterly value. The largest was Harold Hamm's deal to take U.S. shale producer Continental Resources private.

Canada saw two of the top 10 most valuable deals for the quarter, according to Evaluate Energy. In December, Calgary-based Greenfire Resources announced a plan to merge with blank-check firm M3-Brigade Acquisition III, valuing the company at US$950 million. In October, Suncor Energy (SU.TO)(SU) said it would buy an additional 21.3 per cent stake in the Fort Hills oilsands mine in northern Alberta from Teck Resources (TECK-B.TO)(TECK) for approximately $1 billion. The deal was amended to $688 million for an additional 14.65 per cent after TotalEnergies (TTE) used a contractual right of first refusal to buy an additional 6.65 per cent in the project from Teck.

"Bucking this trend, two significant deals in the Canadian oilsands – a sector characterized by high break-even costs – demonstrated some optimism for the medium-term pricing outlook," the report's authors wrote.

Evaluate Energy says a lack of appetite for oil and gas IPOs has fuelled acquisitions of private operators by public companies in recent years. For 2023, the data provider sees the pace of dealmaking picking up after companies spent 2022 largely focused on rewarding shareholders and strengthening balance sheets.

"With debt eliminated or dramatically reduced to an insignificant level, many operators will be very well positioned to focus on investment via M&A," the authors wrote.

"On the assumption oil and gas prices remain strong, we expect a narrowing of the buyer-seller valuation gap, via higher valuations and increased deal activity."

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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