Canadian oil & gas M&A set to increase in 2017

Market observers predict an increase for M&A in Canada’s oil & gas sector for 2017. Key drivers for sector activity include the search for new technologies to reduce costs and emissions as well as ongoing interest from E&P and private equity firms.

The results of the Canadian Oil & Gas 2017 Outlook survey, conducted by Torys LLP in association with Mergermarket, predict an increase in Canadian oil and gas M&A activity in 2017. This comes as a result of a number of factors, such as cash-flush upstream companies, private equity interest in the sector, senior E&P companies targeting acquisitions, and a drive for industrial technology.

With an emphasis on growth through acquiring strategic production assets, upstream companies with enough funds are in position to take advantage of an industry that has seen the longest price downturn in recent history, and one that the Canadian government is looking to support.

This message of price and profitability is echoed by a managing director of a Canadian investment bank: “As the oil and gas industry transforms itself to become profitable at lower price levels, there will be an increased focus on M&A over the next 12 months.”

Continuing on the same emphasis to grow through acquisitions, dealmakers agree that senior E&P companies will become active buyers in Canada for 2017. Many of these companies have kept a solid balance sheet, access to lenders, and the ability to take on new debt. Junior E&P companies, meanwhile, will be the ones most likely to focus on a sale or merger with senior E&Ps due to a wave of consolidations, creating a further increase in M&A.

On the technology front, many companies are looking for new ways to cut costs as well as to comply with various environmental and regulatory requirements. Producers and midstream companies are most interested in technologies that can reduce an emissions footprint during the natural resource extraction process. In order to gain these benefits and utilize new technologies in-house, acquisitions have become a favorable option for these companies.

Canada is also poised to see increased domestic dealmaking focusing on the offshore sector and oil sands. The reasoning behind this is best explained by a managing director of a US investment bank:

“Domestic deals will increase, especially offshore and oil sands. Offshore activity has slowed down, and companies are divesting to save on costs and get capital. Meanwhile, the oil sands producers have been negatively affected by this year’s forest fires. The slump in these sectors will force companies to merge and work together to make profits.”

To learn more about dealmaking trends taking place in Canada’s oil & gas industry or on M&A opportunities in the overall energy sector, check out the Canadian Oil & Gas 2017 Outlook and Mergermarket Energy Forum below.