CTV News Article:
Mon. Dec. 31 2001 5:34 PM
CALGARY - After a year of unprecedented big-name takeovers in the Canadian oilpatch by American energy giants, you'd think a siege mentality would come over guys like Fred Woods.
Woods, former president of Ulster Petroleums which was bought out in 2000 for nearly $650 million, knows how it feels to wake up one day and find his high-paying executive oilpatch job gone. Woods was't put out in the least. He got up the next morning and started all over again, opening his new company, Midnight Oil and Gas Ltd.
"For the most part, this is just part of a cycle," Calgary-born Woods says from the downtown office of the small, privately held company which is exploring for gas in northern and central Alberta.
"You'd be concerned about losing the brains; you're not concerned about the assets," he says. "The assets will come back around."
The energy assets handed over to the Americans this year are vast and include some very big names like Westcoast Energy, Gulf Canada, Anderson Exploration and Canadian Hunter.
But they weren't cheap either, with U.S. takeovers tallying an astounding $36.9 billion in 2001.
And that raises the question whether it's indeed a bad thing for Canadians to be selling out, when the money's great and they just start up new companies anyway.
This year's deals leave the oilpatch 52 per cent owned by Canadians in more than 600 companies. In 1977, only 26 per cent was domestically owned.
Still, the torrid pace of U.S. takeovers raised eyebrows and concerns across Canada, and it likely won't stop in 2002, says Kate Warne, an energy analyst and Canadian market specialist with brokerage Edward Jones in St. Louis.
"We saw a number of takeovers this year, and I think that's likely to continue as long as we're seeing falling oil and gas prices - which I expect to continue in 2002. That tends to create an environment that creates deals."
Pierre Alvarez, president of the Canadian Association of Petroleum Producers, says volatility is the word that best sums up 2001 for the industry.
Less than 12 months ago, the energy sector was revelling in record prices of more than $10 US per thousand feet of natural gas, not to mention sky-high oil prices of about $30 US per barrel.
Now, gas sells for about $2.70 US and oil is drifting south of $18.50 US. And the outlook for next year is anything but rosy.
Alvarez says the dramatic downturn in gas prices which started last spring was one of the defining moments of the year.
"I think what it does is just reinforces in everybody's mind the volatility of the commodity sector."
Still, he believes the Canadian energy industry is more mature and ready for the downturn.
"We have seen these huge price swings before," he says. "I think what's been different this time is the industry's far better prepared to weather it - the balance sheets are much stronger than what they were."
The oilpatch also attracted new interest from the federal government as it moved increasingly beyond Alberta to became active in almost every province and territory.
"I think the government of Canada now recognizes not only the traditional importance of the energy sector as a fuel source, but more importantly as a driver of activity across the country," says Alvarez.
That includes offshore megaprojects in Atlantic Canada, the booming oilsands of northern Alberta and huge natural gas finds in northern British Columbia and the Northwest Territories.
While takeovers are still expected to play a large role in 2002, the dynamic is likely to change.
In 2001, the biggest deals involved robust companies like Canadian Hunter and Anderson, bought respectively by Texas-based Burlington Resources and Oklahoma-based Devon Energy.
In 2002, the deals are more likely to involve companies crippled by low prices, says energy analyst Brian Prokop of Calgary-based Peters & Co.
"What we'll probably see next year is companies become weaker, and then the weak get taken out by both Canadians and Americans," says Prokop.
"But that may not come until we start seeing some blood, and that may take until the second quarter, depending on where commodity prices are going and how much cash companies have on hand."
This should mean continued survival for the handful of large Canadian independents that remain, such as PanCanadian Energy, Canadian Natural Resources, Alberta Energy Co. and Talisman Energy.
One of the most likely candidates for takeover, says Prokop, is Calgary-based Baytex Energy, already struggling under a large debt load. And while other intermediate-sized producers are managing their cash-to-debt levels, he says, "things can change very quickly."
The oil service sector is a different matter and is likely to see more action as big U.S. drilling companies head north looking for deals, encouraged by recent tax changes that make Canadian companies more attractive.
Peters & Co. predicts that all but Canada's largest drilling company, Precision Drilling, are likely takeover targets. That includes firms like Ensign, Enserco, NQL Drilling, Tesco and Trican.
The drillers and other oilfield service companies are quick to feel a slowdown in the oilpatch as companies reduce exploration and development spending.
Tough times are not going away any time soon, predicts Vincent Lauerman, an economist at the Canadian Energy Research Institute.
Lauerman has been tracking the ongoing efforts by the Organization of Petroleum Exporting Countries to cut production and boost the price per barrel as the global economy continues to decline.
He predicts OPEC, which has lost about one million barrels per day in market share over the past three years, will not sit idly by while non-cartel countries like Russia pay lip service to production cuts.
"We still believe it's only a matter of time before a market-share war breaks out," says Lauerman.
"OPEC, I think they're willing to be wishful, but at the same time I don't think they're willing to be played for fools."
Depending when the price war erupts, it could push oil down to $14 US per barrel, Lauerman predicts, close to the lows experienced in 1998.
"It's just not a good situation," says Lauerman. "It's not a good situation for the producing provinces and whoever else."
Another issue facing Canadian energy producers is how Ottawa proceeds with the climate-change file and whether it plans to ratify the Kyoto agreement.
The energy producers association says this is a "very serious issue with potentially very, very significant consequences" and wants a debate on how reducing greenhouse gas emissions will affect the entire Canadian economy.
"Canadian producers could be subject to costs which their American, Mexican, Venezuelan and Saudi Arabian competitors for capital simply will not have to bear," says association president Alvarez.
Despite all these uncertainties, Canadian oil barons like Fred Woods remain optimistic.
"The Canadians will be raising the money again," he says. "The Canadians will be buying the assets back and the Canadians will be back." |
