Oil surge gives private equity a window to exit stranded Canadian energy firms

Inductance Energy

15/09/2021 16:51

By Shariq Khan and Nia Williams
    Sept 15 (Reuters) - A slew of private equity-backed oil and
gas companies have been put up for sale in the Canadian energy
patch, as higher crude prices prompt buyout shops to exit and
free some of their capital that was locked far longer than
originally intended.
    The sales are providing attractive opportunities for small
and mid-cap Canadian oil companies to bulk up their operations,
improving their chances to access debt and capital markets and
cut costs through economies of scale.
    An industry source, currently looking for takeover targets,
said at least a dozen private equity-backed Canadian oil and gas
assets ranging from C$50 million ($39.5 million) to C$500
million are on sale.
    Among these are Azimuth Capital-backed Corex Resources,
Manitoba's second-largest oil producer, which could be valued
around C$300 million, sources told Reuters. Another Azimuth
portfolio company, TimberRock, and PFM Capital-backed Fire Sky
Energy are also seeking buyers, according to sale documents seen
by Reuters.
    The uptick in junior companies for sale underscores how
higher oil prices have created the best environment in more than
seven years for private equity firms to cash in on Canadian
energy investments.
    After a number of lean years junior companies have trimmed
costs and strengthened balance sheets, making them more
attractive acquisition targets, said Scott Barron, head of
Calgary investment banking at TD Securities.
    "Everyone wants to see more size, more scale, more safety.
That's one of the driving forces as to why we are seeing more
consolidation," Barron said.
    Buyout firms have sold around $2.6 billion worth of Canadian
oil and gas producers so far this year, the highest level since
at least 2010, according to IHS Markit. Those exits follow a
wave of consolidation among Canadian companies after many global
oil majors retreated from the Canadian energy patch over the
past five years.
    Public companies were the buyers in all but one of this
year's ten largest energy deals involving a private Canadian
seller, a review of Refinitiv data showed. Top deals included
Tourmaline Oil's  TOU.TO  C$1.1 billion takeover of Black Swan
Energy Ltd in June and Spartan Delta Corp's  SDE.V  C$743
million purchase of Velvet Energy in July.  urn:newsml:reuters.com:*:nL3N2NT2U8
    
    
    DOWNTURN
    Canada's corporate oil capital Calgary used to be a breeding
ground for junior oil and gas companies. Experienced management
teams would lease drilling rights to a promising play and secure
financial backing from private equity firms, who typically
expected the new junior companies to prove up reserves and go
public within five years, booking a healthy profit.
    But the global oil price crash of 2014-15 led to Canada's
energy sector falling out of favor with international investors
and a prolonged downturn forced many private equity firms to
hold on to their investments.
    "Because of low oil prices they did not have monetization
options or exit routes in the last few years," said Christopher
Sheehan, director of M&A research at IHS Markit.
    Vaccine rollouts to combat the pandemic and supply
restraints by the world's top oil-producing nations have pushed
U.S. crude  CLc1  to its highest level since 2014, giving buyout
firms a long-awaited exit window and making banks more willing
to lend.
    "Oil at $70 (a barrel) means banks are now breathing a lot
easier, not as quick to apply pressure on certain companies -
access to capital is much stronger than it has been in years,"
said David Phung, chief financial officer of Greenfire
Acquisition Corp.
    Greenfire in July purchased Japan Petroleum Exploration Co's
 1662.T  Canadian unit JACOS, taking over the Hangingstone oil
sands project in northern Alberta.  urn:newsml:reuters.com:*:nL4N2P5147
    "I don't think we are at the point yet where there is a
flood but another $20 per barrel (rise) and we could be there
very quickly," Phung said.
 ($1 = 1.2668 Canadian dollars)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Private-equity oil & gas sales hit record    https://tmsnrt.rs/395KrRl
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Shariq Khan in Bengaluru and Nia Williams in
Calgary
Editing by Denny Thomas and Matthew Lewis)
 ((Shariq.Khan@thomsonreuters.com;))