Canada M&A hits decade-high as foreign owners flee oil sands

Bloomberg

Mergers and acquisitions in Canada are set for the strongest start in a decade as foreigners sell their oil sands investments.
There have been about $132 billion of transactions recorded this year, the highest since $156.5 billion in the first half of 2007, according to data compiled by Bloomberg. Local companies snapped up these energy assets, boosting domestic M&A to a record.
ConocoPhillips and Royal Dutch Shell Plc are leading the exodus amid a bear market for crude. However, Canadian producers are responding by pumping money into oil deposits in the remote boreal forests, which trail only Saudi Arabia and Venezuela in proved reserves but are more expensive to extract.
“From a relative opportunity perspective, these companies can invest anywhere and so you may be seeing a shift to the US or other markets at the expense of Canada,” said David Rawlings, Canada senior country officer for JPMorgan Chase & Co., adding that domestic players have been quick to seize the opportunity. “There’s a natural home-country bias. If you’re a large Canadian operator you know what can be done if you have more control of the asset,” he said.
JPMorgan was the top financial adviser on transactions involving Canadian firms through June 26, followed by Toronto-Dominion Bank,
Goldman Sachs Group Inc., Royal Bank of Canada and Barclays Plc. Total M&A activity was 8 percent higher from a year earlier. Domestic M&A
activity — Canadians
buying Canadian companies or assets — reached an unprecedented $48.2 billion during the period, up 124 percent year-on-year.
The increase was driven by a record $34.5 billion worth of domestic energy and utility deals. The largest of these was Cenovus Energy Inc.’s purchase of a group of Canadian conventional natural gas assets from ConocoPhillips in March for $13.2 billion.

‘TOO MUCH EFFORT’
Part of the reason international players have been selling off their oil sands assets is because they, on a relative basis, are more expensive and difficult to operate, said Luke Gordon, head of Canadian mergers and acquisitions for the Goldman Sachs Group.
“Oil sands production is
still relatively high-cost, particularly as compared to US shale,” he said.