Canadian asset transaction value in 2008 sank almost 75 percent to a six-year low while corporate deal value declined by two-thirds from the prior year as activity fell off dramatically in the last four months of the year. Fifty-five significant deals (over US$10MM) were announced in the first eight months of 2008, but just ten from September through December. Canadian transactions accounted for less than 15 percent of total worldwide M&A value, the lowest percentage since 2005 and less than half of the record 30 percent in 2007.
Royal Dutch Shell’s US$5.8 billion all-cash corporate acquisition of gas-weighted producer Duvernay Oil was one of only two deals over US$1 billion. Corporate deals outnumbered asset transactions for the fourth consecutive year, although the average corporate transaction value, excluding the Shell-Duvernay deal, was less than US$200MM.
After considerable consolidation among Royalty Trusts in 2007, activity in the sector was moderate (reflecting weak equity and credit market conditions) ahead of the income trust tax-status transition in 2011. The only major acquisition involving a trust was the US$1.3 billion stock-for-stock merger between ProEx Energy Ltd. and Progress Energy Trust, with the merged entity converting to a corporate E&P structure.
Oil Sands transaction value plunged from US$18 billion in 2007 to US$2 billion in 2008. Three oil sands deals were among the ten largest in Canada, but each was in the modest US$400MM-US$600MM range. NOCs/Sovereign Wealth entities were absent from the Canadian M&A market after an active 2007.
Transacted proved (1P) and proved plus probable (2P) reserve volumes declined precipitously to five year lows. Outside of oil sands, gas accounted for the majority of acquired 1P and 2P reserves for the third consecutive year. The Shell/Duvernay transaction considerably lifted total region weighted average implied reserve values from US$21.42/barrel of oil equivalent (boe) to US$31.81/boe, with corporate pricing at a substantial premium to asset deal pricing. Excluding oil sands, 1P asset deal pricing was 15% higher, fueled by a nearly 60 percent rise in pricing for gas-weighted transactions. Pricing was flat for 2P assets, indicating lower valuations placed on upside potential in a low commodity price environment.
