Potential Acquisition Candidates in Canadian Oil and Gas
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The recent purchase of Nexen (NYSE: NXY) by CNOOC Ltd. seems to have put the entire Canadian oil and gas sector into play, and this deal is as good a time as any to review other potential acquisition candidates that might attract a buyer. This interest may be based on the target's own assets or as a backdoor strategy to get a base of operations in the United States.
Other Canadian Oil and Gas Players
Talisman Energy (NYSE: TLM) is one of the more diversified Canadian oil and gas operators with properties in Southeast Asia, Canada, the United States and the North Sea. The company recently sold 49% of its North Sea operations to Sinopec, another major Chinese oil company. Talisman Energy also has an extensive exploration portfolio in Poland, Colombia, Kurdistan, Africa and Southeast Asia. (L10 – page 9) A buyer of Talisman Energy would also get a foothold in the Eagle Ford Shale, where the company has 80,000 net acres.
Encana (NYSE: ECA) has assets spread across Canada and the United States but operates almost exclusively onshore and is primarily a natural gas company. One intriguing asset that might attract an Asian buyer is the company’s natural gas assets in the Horn River Basin and other areas in Western Canada, along with the company’s ownership share of a Liquefied Natural Gas (LNG) facility under construction on the western coast of Canada.
Imperial Oil (NYSEMKT: IMO) is a large Canadian oil and gas company but operates exclusively in Canada with substantial stakes in several oil sands projects. The company is an unsuitable candidate since it is majority owned by ExxonMobil and also has a substantial downstream refining business that many buyers might find unattractive.
Canadian Natural Resources Limited (NYSE: CNQ) has its core operations in Western Canada, where it is heavily involved in various oil sands projects and has substantial natural gas operations. The company reported production of 599,000 barrels of oil equivalent (BOE) per day in 2011, with 92% of the production from North American properties.
On the international front the company has properties in the North Sea and offshore West Africa and plans to increase capital spending on these properties, with $515 million allocated in 2012. Although this is almost double the level of spending in 2011, the company expects production from here to decline on 2012.
Canadian Natural Resources Limited has a market capitalization of $30 billion and also might be too large an acquisition for most potential buyers.
Cenovus Energy (NYSE: CVE) reported oil production of 155,000 barrels per day in the second quarter of 2012, but has operations only in Canada, once again concentrated mostly in the oil sands in Alberta.
Suncor Energy (NYSE: SU) is the largest Canadian oil and gas company, with a market capitalization of $49 billion. This may be too large a target for most buyers and the company also has no upstream operations in the United States. Suncor Energy also has a substantial downstream refining segment that might deter a potential buyer.
In the international area, Suncor Energy has attractive properties in the North Sea and offshore eastern Canada, but also has operations in Libya and Syria, two countries that are currently in the midst of civil war.
Buy or Build
While there are many Canadian acquisition targets available for foreign oil and gas companies that want to establish a foothold in this area, many of these companies have assets and other issues that make them unattractive for purchase. It might be better for a foreign buyer to build up operations organically despite the length of time needed to pursue this strategy.
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