- 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.
