Dire message to Canadian oil industry: merge or risk extinction
Investors have bailed on the Canadian energy sector, states BMO Capital Markets analysts, and the only salvation will be mergers and acquisitions.
“Incentivizing change will be paramount, but the message is clear: merge/innovate or face extinction,” BMO Capital Markets analysts led by Ray Kwan said in a note to clients. “This won’t be an overnight process and may take a number of years.”
Kwan pointed out in a Bloomberg News article that while the equity markets may penalize acquirers in the short-term, “we think well-priced acquisitions of quality assets can generate significant value for shareholders over time.”
The mix of potential M&A candidates varies, with natural consolidators among the oil-weighted producers “self-explanatory”, including the likes of Canadian Natural Resources Ltd., Whitecap Resources Inc., and Torc Oil & Gas Ltd., BMO told Bloomberg News.
For gas-focused names, the bank doesn’t have a clear idea on who it might be, but companies such as ARC Resources Ltd. and Tourmaline Oil Corp. contain solid balance sheets and well-respected management.