On Monday, Whitecap Resources (TSX:WCP) announced that it had agreed to buy a number of oil and gas properties from Imperial Oil Ltd. (TSX:IMO) for $855 million. This transaction comes on the heels of renewed M&A activity in the energy sector. According to the Globe and Mail, this deal “pushes the industry’s tally for merger and acquisition activity for the quarter to $7-billion, nearly 10 times the total for the first three months of 2013”.
There are a number of reasons for this turnaround, including a rebound in Canadian energy prices. This is in part due to the fact that the discounts that had been previously applied to oil prices, on account of oil transportation bottlenecks, have narrowed as companies have begun to rely more heavily on rail as well as new pipeline capacity that has been created.
The upsurge in M&A activity is also due to a rise in investor confidence. This is evident by the fact that many of the recently announced energy sector acquisitions are backed by successful equity financings. In the Globe and Mail article, Ryan Ferguson Young, manager, corporate advisory at Sayer Energy Advisors notes, “[t]here is way more positive investor sentiment in the industry, so more capital is being thrown to the industry – it’s definitely improved commodity prices and the general perception that the industry is on a rebound.” Whitecap, for instance, issued $500 million in subscription receipts to help fund the acquisition. It’s this seemingly newfound access to capital that, according to Mason Granger, an oil and gas fund manager with Toronto-based Sentry Investments, fast-tracked M&A activity in the energy sector: “Going back to 2011, 2012 and the first half of 2013, that was a pretty tough time for energy stocks. But we saw signs of life at the end of last year, and financing activity picked up markedly in the second half of 2013, which I viewed as an important precursor of M&A (merger and acquisition) activity this year.”
After a lacklustre 2013, the energy sector’s boost in M&A activity in 2014 has left those in the oilpatch hopeful for sustainable growth. It is also welcome news for companies in other sectors, as there are consistent views that the energy sector will be the driver behind increased M&A growth in other markets.