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Consolidation Is Inevitable For Canada’s Oil Industry

Consolidation Is Inevitable For Canada’s Oil Industry

Canada’s economically dependent oil industry…

Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Is This The First In A Slew Of Megadeals In Oil?

Oil prices have shown some weakness lately. With WTI slipping below $48 per barrel — after briefly topping $50 at the end of July. 

But even at that level, crude has now been relatively stable for over a year — trading between the low 40s and low 50s. 

And that predictability is bringing back petro-M&A. 

That included a mega-deal this week by one of the world’s largest oil companies. With the firm making its biggest outlay in buying new production since 1999.

In a place few observers expected. 

The company is French major Total. And the location is the North Sea. 

Total announced over the weekend that it will acquire the oil and gas unit of Denmark’s A.P. Moller-Maersk — for a total deal value of $7.45 billion, including $4.95 billion in shares and assumption of $2.5 billion in debt. 

That’s the biggest deal Total has made in nearly two decades. And the buy is firmly focused on the North Sea — with 80 percent of the Maersk asset portfolio located in this region. 

That includes 160,000 barrels per day equivalent of production, which Total says it can expand to 200,000 boe/d by 2020. 

The deal is significant for a number of reasons. First because it’s a key signal that oil majors are getting comfortable doing deals again — after a freeze in spending triggered by the oil price crash of 2015. 

In fact, the Total deal is the biggest of the past year. Coming after Exxon Mobil announced spends like a $5.6 billion acquisition in the Permian Basin of Texas, and a $2.5 billion purchase of Papua New Guinea natural gas developer Interoil.  Related: Brazilian Corruption Charges Could Impact Mexico’s Oil Boom

This week’s deal also confirms a trend that’s been in motion for a few years now: a gradual resurgence of the North Sea. With this mature basin quietly attracting a lot of spending from some of the world’s biggest E&Ps.

Despite the big upside of Brazil or East Africa, the North Sea is a place many firms understand — with a proven track record of ease in finding and developing new oil and gas fields. 

That predictability still trumps high-impact geology for many majors. Watch for more deals in this space — and for a continuation of the general upswing in energy M&A currently in motion.

Here’s to known quantities.

By Dave Forest

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