While a record number of 26 Canadian oil and gas companies have gone bust this year, the worst is over, say analysts, because the weakest among them have already fallen out of the game.
Generally speaking, in the Canadian oil patch there are around eight company failures each year, according to Calgary-based Sayer Energy Advisors VP, Tom Pavic, speaking to Canada’s Financial Post.
The year 2015 saw 20 oil and gas companies face court-monitored receivership or restructuring, number for number equal to 2009 at the height of the economic downturn.
Canadian media also cited Sayer as saying in a separate report that he expected more energy deals over the next year as buyers and sellers begin to see eye to eye on the value of assets in this depressed oil price market.
In the first nine months of this year, according to the report, CAD$17.8 billion in oil and gas deals took place in the Canadian oil patch. This is nearly CAD$3 billion more than in 2015, but far behind the nearly CAD$50 billion racked up in 2014.
But the overall view is that the panic is over, and the weakest have been weeded out.
The Financial Post also cited Bruce Edgelow, VP of ATB Financial’s strategic initiatives, as saying that the new normal in terms of cash flow is now being accepted.
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“People have kind of settled into the cash flow they’re getting,” he said. “They’ve gotten their costs as low as they can and the market has clearly stabilized … There’s not as much frantic-ness to it,” he was quoted as saying.
CBC Canada noted that the country’s oil and gas industry was very slowly coming up for air, but another year of downturn would have been its undoing.
While the worst may be over, if prices dip down too low again, the Canadian oil patch will be in trouble, CBC quoted energy financier Rick Grafton as saying.
"The industry doesn't work under $50 oil and when oil is under $50, we have major capital expenditure cuts, we have major outflows of money, and this industry, if it doesn't have money, it doesn't grow,” Grafton said.
By Charles Kennedy of Oilprice.com
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Charles is a writer for Oilprice.com