Oil and gas sector set for more M&A activity

In early February, a study highlighted increased expectations for M&A activity in Canada in 2017. And now, a new study puts the spotlight on the oil and gas industry.

Executives and bankers in that industry expect a robust year for M&A activity, finds a survey by Torys LLP. It says more than half (67%) of respondents expect M&A volume to increase in 2017, and 54% expect the value of M&A to increase.

Investor confidence in the oil and gas industry has been bolstered by government support of projects such as the Keystone XL and Trans Mountain pipelines.

Read: Tackling infrastructure investment, part one

Energy buyers are expected from the U.S. (say 73% of respondents), the Asia-Pacific region (say 69%) and China (say 51%). Respondents say buyers will be enticed by buoyant oil prices and new technologies that boost efficiency.

Further, global demand is on the rise as Asian buyers look for a secure supply of oil and gas.

Read: How to use themes to understand emerging markets

More than half of respondents (52%) expect senior exploration and production (E&P) companies to be the main buyers, while junior E&P companies struggle with debt and reduced cash flow.

Other factors to consider for oil and gas M&A activity include: agreements with Indigenous peoples in Canada, especially for infrastructure for exports and for liquefied natural gas (LNG) projects; and the effect of carbon pricing.

The price of oil and gas

More than half of respondents (56%) expect oil prices to remain the same, but 43% expect an increase in prices.

As of March 9, WTI crude was sitting around $50 while Brent crude was closer to $53, after prices dipped 5% on Wednesday (click here for updated values). As reported by The Globe and Mail on March 8, this occurred after “[…] U.S. crude inventories surged much more than expected, stoking concerns a global glut could persist despite OPEC’s output curbs.”

Nonetheless, the study says a slowly rising price curve is in line with projections from the International Energy Agency, showing that the market has bottomed out and supply-demand dynamics will support oil prices again by the second half of 2017.

Though oil is the top fuel by demand, gas is the fasted growing, with an expected annual growth rate of 1.6% through 2040. Production from unconventional supply sources, including oil sands, is also expected to grow. Accordingly, most respondents (65%) expect an increase in gas prices.

Read the full report.

About the report: Torys LLP commissioned Mergermarket to interview 100 senior corporate executives and investment bankers with recent Canadian oil and gas experience to gain insight into their predictions surrounding some of the key challenges and opportunities for the sector. All responses are anonymous and results are presented in aggregate.

Also read: Oil industry finds sweet spot for job cuts