Canada defies global slump in oil and gas deals: report

Evaluate Energy says the number of upstream oil and gas deals is at its lowest in the post-COVID vaccine era. (Getty)

Canada’s tar sands has defied a recent global slowdown in fossil fuel deals, according to a new report, which blames market uncertainty for splitting buyers and sellers as commodity prices fell.

According to Evaluate Energy, $89 billion in new upstream deals will be recorded globally in 2022. That’s the lowest figure since the London-based data company began reporting on mergers and acquisitions in 2008.

“Aside from the lack of major mergers, the 2022 total can be attributed to a dramatically widening gap between buyer and seller ratings,” the report’s authors wrote. “The surge in oil prices to over $100 a barrel following Russia’s invasion of Ukraine was a key factor.”

Evaluate Energy says deal count is lowest in post-COVID vaccine era. In the fourth quarter of 2022, global upstream oil and gas M&A totaled $20 billion, down 36 percent from the previous three-month period. During that time, West Texas Intermediate (CL=F) crude oil prices averaged $82.79 per barrel compared to $93 in the third quarter and $109 in the second quarter.

“The totals are even lower than the pandemic-hit 2020, which was boosted by a series of high-value corporate mergers, such as Concho Resources’ acquisition by ConocoPhillips and Chevron’s acquisition of Noble Energy, each for $13 billion was,” the authors wrote.

The vast majority of fourth-quarter M&A deals occurred in the United States and Canada, accounting for 81 percent of the total quarterly figure. The largest was Harold Hamm’s deal to privatize US shale producer Continental Resources.

Canada recorded two of the quarter’s top 10 deals, according to Evaluate Energy. In December, Calgary-based Greenfire Resources announced a plan to merge with blank check company M3-Brigade Acquisition III, valuing the company at $950 million. In October, Suncor Energy (SU.TO)(SU) announced that it had acquired an additional 21.3% interest in the Fort Hills oil sands mine in northern Alberta from Teck Resources (TECK-B.TO)(TECK) for approximately April 1, 2018 billion US dollars would buy. The deal was amended to $688 million for an additional 14.65 percent after TotalEnergies (TTE) exercised a contractual right of first refusal to buy an additional 6.65 percent of the project from Teck.

“Contrasting with this trend, two significant deals in the Canadian tar sands — a sector characterized by high break-even costs — indicated some optimism about the medium-term price outlook,” the authors wrote.

According to Evaluate Energy, a lack of appetite for oil and gas IPOs has led to takeovers of private operators by public companies in recent years. For 2023, the data provider sees an acceleration in deals after 2022 saw companies largely focus on rewarding shareholders and strengthening balance sheets.

“If debt is eliminated or drastically reduced to insignificant levels, many operators will be very well positioned to focus on M&A investments,” the authors write.

“Assuming oil and gas prices remain strong, we expect the buyer-seller valuation gap to narrow through higher valuations and increased transaction activity.”

Jeff Lagerquist is Senior Reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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