Get Together - Alberta Oil Sands Consolidation Fires Up With Cenovus-MEG Merger — Maybe!

Merger activity this year has been frequent in Canada’s oil and gas sector as companies strive for scale and efficiencies in an increasingly competitive landscape. The latest M&A salvo arrived in late August when MEG Energy agreed to a takeover offer from Cenovus Energy to create the largest bitumen producer in Alberta’s oil sands. With billions of barrels of reserves up for development, it is a chance for Cenovus to further consolidate and expand its existing lead in bitumen output from the oil sands. However, what might seem a straightforward corporate merger has been buffeted by a rival bid from Strathcona Resources in its attempt to create scale and ensure its own long-term competitiveness. In today’s RBN blog, we’ll examine the details of the two offers and what is at stake for all involved. 

It might not be quite merger mania in Canada’s oil and gas sector this year, but activity has been steady and filled with several headline-grabbing items. As is the case with almost all M&A activity, the primary focus is on attempting to enhance value for public and private shareholders by combining assets that might be operated more efficiently by a single combined firm, accompanied by a reduction in operating costs. Another undercurrent for Canada’s M&A activity has been about attempting to achieve sufficient scale through consolidation to allow for stronger competition with both domestic and international rivals, given that Canada is a relatively small country economically and by population, so it needs to punch well above its weight to remain relevant and competitive.

There has also been a consistent theme this year by Canadian companies in all sectors to not only grow larger but to also “Canadianize” important assets given the increased trading frictions with its largest trade partner (and occasional corporate rival), the U.S. (The evolving relationship between the U.S. and Canada was a main theme of our recent School of Energy Canada. For information on a newly available replay of the conference, click here.)

Although more than a dozen property and corporate deals of various sizes have been consummated in Canada’s oil and gas sector this year, two leaped to the forefront because they embodied not only an attempt to achieve scale and consolidation (hence competitiveness) but also kept assets in Canadian hands or brought assets owned by a foreign entity under Canadian control. The first was the blockbuster C$15 billion (US$10.7 billion) merger of Canadian companies Whitecap Resources and Veren Inc. in March that combined conventional and unconventional oil and gas producing assets and, since the completion of the merger in May, created the seventh largest oil and gas producer in Canada. The second deal of size concerned midstream assets when Keyera purchased the NGL business of Plains Midstream Canada (a wholly owned subsidiary of Plains All American) in June for C$5.15 billion (US$3.75 billion), creating a Canada-wide NGL processing and transportation machine.