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NorthAmOil COMMENTARY NorthAmOil

He went on to say that his company, which has Group and Warburg Pincus, as well as GIC Pri-
been deploying private equity capital to buy up vate, Singapore’s sovereign wealth fund. Osum
small oil companies in recent years, did not see produces roughly 20,000 bpd.
this changing for some time.
This comes as indebted producers increas- What next?
ingly find themselves struggling to access financ- Among those companies struggling to survive,
ing, with banks and creditors turning away after some have put themselves up for sale, while oth-
years of low returns from the oil industry. Many ers still, including Bow Energy and Cequence
producers in Canada had not even fully recov- Energy, have filed for creditor protection.
ered from the last downturn, which started in Meanwhile, on August 31, Obsidian Energy
2014, when the current one took hold. publicly launched a proposed hostile takeover of
Under these circumstances, certain smaller Bonterra Energy, requesting that the company
Canadian energy companies have had their bor- agree to a merger. On September 8, Obsidian
rowing bases redetermined or have seen credit followed up with the announcement that it
revolvers cut to less than what is drawn on the intended to make an offer to purchase all of Bon-
debt facility, a Moody’s Investors Service senior terra’s issued and outstanding common shares.
analyst and vice-president, Paresh Chari, was ““We believe our offer is in the best interests
cited by the Financial Post as saying. He went of Obsidian Energy and Bonterra shareholders,” Obsidian’s move
on to say that this had effectively forced some of stated Obsidian’s interim president and CEO,
them into bankruptcy. Stephen Loukas. “The combination of our com- demonstrates
Others, meanwhile, are increasingly willing panies creates a ‘Cardium champion’ with an the growing
to merge with larger players in order to avoid improved cost structure, increased capital mar-
bankruptcy. And while this can help ensure their kets relevance and positions us favourably for frustration at
survival in a different form, it still makes contin- further consolidation within the basin.”
ued existence as a smaller company considerably Analysts said Obsidian’s move demonstrates the slow pace
more difficult for many. the growing frustration at the slow pace of con-
For opportunistic buyers, meanwhile, it spells solidation in the Canadian energy industry. of consolidation
new opportunities. The Financial Post noted that “I don’t know that this goes anywhere only in the Canadian
Waterous Energy is among the firms buying up to say that, hey, finally people are getting more
smaller players at lower valuations. aggressive with their consolidation ideas in the energy industry.
“Consolidation has never been more urgently space,” Stifel FirstEnergy’s managing director of
needed than right now,” Adam Waterous was institutional research, Cody Kwong, was quoted
quoted as saying recently. He went on to describe by the Canadian Press as saying. “I think that
small energy companies that have been shut out what our space needs is consolidation, and I
of both debt and equity markets, without access think there’s kind of frustration that maybe some
to capital, as “effectively orphaned businesses”. deals haven’t been consummated.”
Indeed, in August, Waterous Energy acquired Such sentiment may help deal-making
a 45% stake in oil sands player Osum Production activity to accelerate in the coming weeks
from US-based private equity players Blackstone and months.™

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