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Why Canada's Oil Giants Are Skipping the Global M&A?
02/21/2024![Why-Canada-s-Oil-Giants-Are-Skipping-the-Global-M-A-](https://images2.rextag.com/public/blog/H244_Blog_Why Canada's Oil Giants Are Skipping the Global M&A_.png)
- 27 M&A deals hit Canada's oil & gas in Q4 2023, worth $4.2bn.
- Biggest deal: Pembina's $2.3bn acquisition in the sector.
- Canadian oil firms watch as U.S. M&A surges.
- No major takeovers for Canada's mid-tier oil producers.
- Experts doubt Canada's oil majors will avoid M&A much longer.
The Canadian oil and gas sector announced 27 M&A deals in the last quarter of 2023, totaling $4.2 billion in value. The biggest deal of the quarter was Pembina Pipeline's $2.3 billion acquisition of several companies including Alliance Pipeline and Aux Sable Canada.
Compared to the previous quarter, the total value of M&A deals in Canada grew by 20% from $3.5 billion and jumped 95% compared to the same quarter the previous year. However, the number of deals dropped slightly by 4% from the previous quarter and was 23% less than the year before.
After a slowdown caused by the 2020 oil price crash, the U.S. oil and gas industry saw a huge increase in M&A activity in 2023. The industry capitalized on high stock prices to make $250 billion in acquisitions, mostly focusing on securing cost-effective reserves. The fourth quarter alone saw $144 billion in deals, with major companies like Exxon Mobil, Chevron, and Occidental Petroleum making significant acquisitions.
The U.S. saw a remarkable deal when Diamondback Energy agreed to buy Endeavor Energy Resources for $26 billion, despite Diamondback's market cap being only $31.8 billion. Following the announcement, Diamondback's stock rose by more than 10%, indicating a positive market reception.
In contrast, Canada's energy sector also experienced a surge, with M&A hitting a five-year peak at $70.4 billion, 56% higher than the previous year. Notably, while mid-tier Canadian producers like Tourmaline Oil and Peyto Exploration completed deals, the country's largest oil companies remained largely inactive in the M&A.
Experts Talking That …
It's becoming increasingly clear that Canada's oil giants may not sit out the ongoing wave of mergers and acquisitions (M&A) for much longer. These firms are facing the same pressures that are driving consolidation elsewhere, such as the push for bigger operations and more reserves. Notably, these companies are financially well-positioned. For instance, Canadian Natural Resources, the biggest in terms of market value, returned $6.1 billion to its shareholders in just the first nine months of 2023 and plans to give back 100% of its free cash flow to shareholders this year.
Given their strong financials, these Canadian energy leaders have the flexibility to engage in strategic M&As without cutting back on shareholder returns. They could take a cue from Diamondback Energy, which reduced its shareholder payouts from over 75% to 50%, enabling it to free up cash for acquiring Endeavor Energy. Additionally, with their stock prices having risen significantly in the past few years, these Canadian majors are well-equipped to use their shares as currency for mergers, just as their U.S. counterparts have done.
Trans Mountain (TMX) Pipeline and Its Role
The Trans Mountain (TMX) pipeline, crucial for Canadian oil exports, is starting to fill with crude this month, a major step towards its operation. The majority of the pipeline, capable of handling 890,000 barrels per day, will be filled by March, a process taking 2-3 weeks. The inaugural shipment from the pipeline is scheduled for April in Vancouver.
Now 98% complete, the pipeline's expansion is set to triple its capacity, significantly altering oil distribution in the Americas and boosting exports to Asia. This increase is expected to encourage more Canadian oil production. Despite being planned over a decade ago, the project's costs have surged to nearly $31 billion, four times the original estimate.
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Pembina (PBA) to Acquire Enbridge's Joint Ventures for $2.3 Billion - C$3.1 Billion
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/211Blog_Enbridge divests Alliance Pipeline and Aux Sable interests for 2.3B.png)
Pembina Pipeline Corporation PBA, a well-known player in the Canadian midstream sector, recently announced its plan to acquire Enbridge Inc.'s remaining shares in the Alliance Pipeline, Aux Sable pipelines, and NRGreen joint ventures. The deal, valued at C$3.1 billion or US$2.3 billion, marks a key step for Pembina in asserting its leadership in North America's natural gas transportation sector. This strategic acquisition is expected to considerably boost Pembina's growth and profitability in the coming years.
Chevron to Sell Stake in Canada’s Duvernay Shale
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/227Blog_Chevron to Sell Canadian Shale Stake.png)
Chevron is selling its Canadian shale production operations as part of a wider plan to concentrate its investments on more profitable projects in the United States.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/297_Blog_Keystone XL Pipeline Controversy and Wildlife Disaster From Trump's Green Light to Biden's Red Light on the 15 Billion Project.jpg)
The pipeline industry in the USA faced and still faces a range of regulatory challenges, including permitting delays, environmental requirements, and public opposition to pipeline projects. In recent years, pipeline projects like the Keystone XL and Dakota Access pipelines had legal and regulatory obstacles that delayed or canceled their construction. Keystone XL Pipeline, proposed by TransCanada in 2008, aimed to transport crude oil from Canada (around Calgary and Edmonton) to refineries on the Gulf Coast (Port Arthur). The project faced opposition from environmental groups and indigenous communities, who argued that it would contribute to climate change and pose a risk to water resources. In 2015, President Obama rejected the project, citing concerns about its environmental impact. However, in 2017, President Trump revived the project, leading to further legal challenges. In June 2021, U.S. President Joe Biden officially canceled the project on his first day in office.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/282_Blog_Renewable Natural Gas How RNG Changes the Industry.jpg)
The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/295_Blog_Renewable Efforts Lag as Global Oil and Gas Demand Continues to Rise.jpg)
Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall. Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends. This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.