Merger Mania Is Transforming Canada’s Oil Scene

Canada’s oil landscape looks encouraging for 2021 as Whitecap Resources Inc. acquires two oil and gas companies in addition to mergers between other energy companies, with anticipated growth through the coming year as demand for energy steadily increases. In November, Whitecap Resources announced a plan to acquire rival company TORC Oil & Gas through an all-stock transaction of $704.12m equivalent. The deal is expected to go through by 25 February 2021, providing an encouraging outlook for the first quarter of next year. 

This merger would mean an estimated 100,000 bpd equivalent in production making it one of Canada’s major players. The expected value of the combined company is around $3.13 billion. 

Since demand for energy has steadily increased since the slump in early 2020, so has Whitecap’s share price, going from C$2.29 ($1.80) in early July to C$4.96 ($3.89) in December, with a market cap of C$2.025 billion ($1.58bn) on the Toronto stock exchange. 

Whitecap CEO Grant Fagerheim stated of the acquisition, “We are combining two strong Canadian energy producers to form a leading large-cap, light oil company geared towards generating sustainable long-term returns for shareholders while prioritising responsible Canadian energy development’”.

The TORC acquisition comes just months after Whitecap announced its plan to buy NAL Resources for nearly $119 million in August. Manulife, an insurance and financial company, will have a 12.5 percent stake in the combined company as Whitecap issues it with 58.3 million shares. The move to acquire both companies drives forward Whitecap’s aim to increase its Alberta and Saskatchewan assets and operations.

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Smaller energy companies across Canada have been showing interest in mergers throughout 2020 as a means to bolster their portfolios, in response to the volatile oil market this year. 

In October, Cenovus Energy and Husky Energy agreed to an all-stock transaction, valued at $2.9 billion, to undergo a merger. The move will make the combined company the third-largest oil and natural gas producer as well as the second-largest refiner and upgrader in the country, at a total value of $17.97 billion and a production level of 750,000 bpd equivalent. The company is expected to operate out of Calgary, Alberta.

Additionally, Obsidian Energy proposed a combination transaction to Bonterra Energy Corp. in August, with a plan to issue up to 72.3 million shares, giving Bonterra a 48 percent stake in the combined company. Bonterra is yet to agree to the proposal, but this could all change as the deal will be on the table until 4th January 2021. 

In July, top independent U.S. oil producer ConocoPhillips announced it would buy Canadian land from Kelt Exploration Ltd at $375 million. Kelt’s 140,000 acres in British Columbia is directly next to ConocoPhillip’s Montney lands, providing greater oil production potential at an estimated 1 billion bpd equivalent. 

ConocoPhillips previously sold much of its Canadian assets to Cenovus Energy in 2017, in the move to withdraw foreign producers from Canada. However, given the dire situation – battling pandemic restrictions and the significant decrease in the price of oil, small companies are turning to external actors for a bailout. 

Mergers between small Canadian oil and gas companies with bigger Canadian and U.S. players through the trade of stocks has helped them to battle the 2020 decrease in energy demand. Going into 2021, these newly combined companies are expected to play a big role in Canada’s oil sector.

By Felicity Bradstock for Oilprice.com

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