Page 9 - NorthAmOil Week 36

NorthAmOil COMMENTARY NorthAmOil

Small Canadian producers

struggling to survive

Small and medium-sized Canadian producers are under increasing

pressure as market conditions remain challenging, and many may

not survive

CANADA THE oil industry downturn continues – and
indeed could worsen again, with crude prices
WHAT: weakening this week after Saudi Arabia cut its oil
Many smaller Canadian sales prices for October. The Canadian oil indus-
producers will struggle try – already under pressure before crude prices
to survive this industry and demand began their collapse in March –
downturn. has been among those hit particularly hard by
the market downturn. Indeed, NewsBase has
WHY: previously reported on the challenges faced by
A number of these Canadian producers, and current developments
companies could be suggest there is no reprieve in sight.
forced into bankruptcy Bigger producers, such as the four leading
or into a takeover by Canadian oil sands giants, are relatively well-po-
another producer. sitioned to ride out the storm. But for small and
medium-sized players, survival looks increas-
WHAT NEXT: ingly difficult and consolidation is expected to
Small players are pick up speed as struggling producers run out continue to be active in looking for other oppor-
increasingly likely to be of options. tunities to strengthen our company for the
sold at bargain prices as longer term.”
their options for survival M&A momentum The Financial Post noted, citing National
narrow. More mergers and acquisitions (M&As) have Bank Financial analyst Travis Wood, that the
already been announced in recent weeks after Whitecap-NAL merger also serves to illustrate
a quiet start to the year. Since June, there have how far energy company valuations have fallen.
been five M&A deals valued at CAD828mn Whitecap is buying NAL for just 1.5-times
($630mn), according to FP Data, while in the the latter’s annual cash flow, Wood told the
year to date, there have been 23 deals worth a newspaper.
combined CAD1.65bn ($1.25bn). Indeed, prior to the start of this downturn,
In August, Canadian Natural Resources Ltd. it was thought that numerous buyers and sell-
(CNRL) announced that it had struck a deal ers were failing to agree on valuations, causing
to buy Painted Pony Energy for CAD461mn a slowdown in M&A activity. But as market
($351mn) in a bid to grow its position in British conditions remain challenging and smaller
Columbia’s Montney shale play. players struggle to stay afloat, acquisitions at
More recently, Whitecap Resources bargain prices are anticipated to become more
announced a merger with NAL Resources and a commonplace.
privately held wholly owned subsidiary of Man- Acreage is changing hands for similar reasons
ulife Financial last week. Whitecap will use its as debt-laden companies explore their remain-
stock to buy Manulife-backed NAL in a deal that ing options. In July, Kelt Exploration agreed to
is estimated to be worth CAD155mn ($118mn). sell 140,000 acres (567 square km) of Montney
Notably, the company said it considers itself to be assets in BC to ConocoPhillips in a $375mn deal
in a position to make further acquisitions. that allowed it to eliminate its debt.
“At this point in time, we believe that rather
than drilling out your inventory for very limited Endangered
return, there’s potential to increase your inven- Last week, Waterous Energy Fund’s CEO,
tory through acquisitions,” Whitecap’s presi- Adam Waterous, was cited by the Financial Post
dent and CEO, Grant Fagerheim, told analysts describing 20,000 barrel per day (bpd) producers
on a conference call to discuss the deal. “We’ll in Western Canada as an “endangered species”.

Week 36 10•September•2020 www. NEWSBASE .com P9