IN THE NEWS / '99 Will Be Another Hot Year For Oilpatch Mergers
Chris Varcoe, Calgary Herald
Mega-deals help lead to a record year for merger and acquisition activity in the Canadian oilpatch last year.
And as depressed oil prices continuing to haunt the industry, analysts predict corporate takeovers will remain at a torrid pace in 1999.
"I would expect mergers and acquisitions to continue to be robust,'' said analyst Rick Roberge of PricewaterhouseCoopers.
"This will go on until oil prices come back."
There were $18.3 billion worth of mergers and acquisitions involving petroleum producers during the first nine months of 1998, almost $2 billion more than in all of 1997, said Frank Sayer of Sayer Securities, a Calgary investment firm that tracks M&A activity.
The massive international merger of British Petroleum Co. and Amoco Corp. last year added $6.5 billion to the Canadian figures, Sayer said.
Not included in the nine-month totals are several major deals triggered in the final quarter of the year, including the $163-million acquisition of Pan East Petroleum Corp. by Poco Petroleums Ltd., Big Bear Exploration Ltd.'s $300-million hostile takeover of Blue Range Resource Corp, and Abraxas Petroleum Corp.'s $129-million deal for New Cache Petroleums Ltd.
Internationally, the largest merger in corporate history - Mobil Corp.'s proposed $76.6-billion US merger with Exxon Corp. - was ignited in December, affecting the Canadian affiliates Mobil Oil Canada Ltd. and Imperial Oil Ltd.
Sayer believes depressed oil prices will lead more companies to put assets up for sale in 1999. Several companies put themselves up for sale last year, including Summit Resources Ltd. and Remington Energy Ltd.
"People are uncertain about what they should value assets at...but I think it's going to pick up now that there is a better understanding of long-term oil and gas prices,'' Sayer said.
Several factors are driving the merger mania.
Low commodity prices have eroded cash flows for some petroleum producers, impeding their financial flexibility and ability to grow, said Mike Tims, president and chief executive of Peters & Co. investment firm in Calgary.
Falling share prices last year made some companies vulnerable to hostile offers, with their stock price falling below net asset values. Reduced profits and lack of success caused other management teams to lose shareholder support, sparking a takeover, he said.
"The basic factors haven't changed,'' Tims added. "I think there will be a steady run of deals in 1999."
Several American companies made their mark buying Canadian firms last year, but Roberge believes most U.S. organizations have stopped kicking tires as the cash crunch has affected the entire sector.
"The Americans aren't floating around on the streets of Calgary with cash in their pockets,'' he said. "But I think in the first half we'll see some fairly larger merger deals with paper (involving a company's stock) rather than cash."
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