Page 10 - NorthAmOil Week 26

NorthAmOil COMMENTARY NorthAmOil

Filing for CCAA protection may therefore start countries respond faster to localised outbreaks
to look like an increasingly attractive option to of the virus, avoiding more drastic measures.
certain players seeking to avoid receivership or More consolidation could also be on the hori-
bankruptcy. zon, according to EY’s Narfason.
Upstream companies are not the only ones “We do expect to see more energy-based
taking this path. Service providers and those insolvencies. We’re also expecting more con-
that depend on the energy industry for con- solidation and [merger and acquisition] activity
tracts are also affected and may pursue restruc- because companies just aren’t going to have the
turing. Indeed, Entrec, an Alberta-based heavy liquidity they need to carry out a proper business
haul transportation and crane provider, entered plan,” he told CBC News.
CCAA in May. And as with the upstream sector, Few companies have shown a willingness
more of its peers may follow. to buy assets or other companies thus far, sug-
gesting that the industry is largely inclined to
What next? be cautious. This marks a change from previous
How these companies look after they emerge downturns, when stronger players – including Much depends
from CCAA protection remains to be seen. Canadian heavyweights such as Suncor Energy
For example, Cequence said it would investi- and Canadian Natural Resources Ltd (CNRL) on how oil prices
gate options that “may include the sale of all or – would often seek to buy assets on the cheap. will behave in the
a portion of the business and assets or shares of Given how some Canadian producers have
the company, renegotiation of certain onerous struggled with debt – and how new, unexpected coming weeks
contracts, refinancing, recapitalisation or other downturns have set back their efforts to pay
restructuring alternatives.” down this debt – however, this is not surprising. and months.
Options other than the CCAA route are Majors are also under pressure to protect their
also available. For example, Bonavista Energy dividends and minimise their debt currently.
announced in mid-June that it was entering into And giant transactions such as US-based Occi-
a recapitalisation transaction, which is described dental Petroleum’s ill-timed $55bn takeover of
as similar to what Delphi did in late 2019. In Del- Anadarko Petroleum last year serve as a warning
phi’s case, though, the recapitalisation was not not to rush into major deals during periods of
enough to stop it from subsequently entering such uncertainty for the oil industry.
CCAA protection in April 2020. Buyers and sellers may also be failing to agree
This illustrates how success is not guaran- on valuations of assets. There is, however, a pos-
teed whatever companies decide to do. Much sibility that this could change as the downturn
depends on how oil prices will behave in the drags on and some companies become desperate
coming weeks and months, and on whether to sell some or all of their assets. Again, much
there is another wave of COVID-19 lockdowns depends on crude price trends in the near and
– though this looks increasingly less likely as medium term.™

P10 www. NEWSBASE .com Week 26 02•July•2020