RIGZONE: Rumours Point to Growing Expectation of Big Oilpatch Deals in the Offing: “EnCana, Canada's largest independent energy company, was also rumoured in October to be coveted by global energy giant Royal Dutch Shell Group PLC, despite its market value of more than $45 billion.”: Posted Tuesday 22 November 2005  

Canadian Press

Monday, November 21, 2005 

A spate of takeover rumours involving some of Canada's largest independent energy companies points to a growing belief that big deals are afoot as the oilpatch grapples with unprecedented wealth from sustained near-record oil and gas prices.

"You've had a long period of high cash flows - and free cash flows," said energy analyst Chris Theal with Tristone Capital Inc. in Calgary. "And we're at the stage now where you're seeing the majors looking to where they can deploy that cash."

"I think we are at the front end of a consolidation phase."

To some industry observers, the $18-billion takeout of Unocal Corp. in August by California-based Chevron was just the start of a new era of big-money mergers and acquisitions in the North American industry.

Whispers of more deals continue to rattle around the streets of Calgary, Canada's oilpatch headquarters.

Last week, Calgary-based Talisman Energy (TSX:TLM) was rumoured to be in the sights of Houston-based ConocoPhillips.

Talisman - with key assets in Southeast Asia, the North Sea and Canada, as well as new exploration activity planned for Alaska - is said to be a good fit for ConocoPhillips, which made a big splash into Canada four years ago with its $8.9-billion acquisition of Gulf Canada Resources.

And even with a market value of $20.5 billion, analysts say Talisman is relatively cheap and would be an instantly accretive deal.

But potential suitors for large Canadian and U.S. energy companies are now coming from all corners of the globe.

Chevron was in stiff competition for Unocal from Chinese-based CNOOC Ltd., which is 70 per cent owned by China's Communist government.

Last month, another Chinese energy company, China National Petroleum Corp., succeeded in buying Calgary-based PetroKazakhstan Inc. for $4.2 billion US. The company's assets were all located in the central Asian country of Kazakhstan, which is expected to contain large oil and gas reserves.

EnCana, Canada's largest independent energy company, was also rumoured in October to be coveted by global energy giant Royal Dutch Shell Group PLC, despite its market value of more than $45 billion.

EnCana has denied any knowledge of a pending deal and rumours - and accompanying stock spikes - have died down for now.

Other big international integrated oil companies are also looking to North America, where political risk is lower. Specifically, the northern Alberta oilsands is attracting a great deal of attention due to its proximity to the U.S. and the fact that it contains the world's second-largest energy reserves behind Saudi Arabia.

French energy giant Total SA gained a large stake in the oilsands earlier this year with the $1.58-billion acquisition of junior Deer Creek Energy, and plans to spend about $9 billion US to develop a major open-pit mine and upgrader.

Italian-based Eni SpA also gets mentioned often in rumours as a company keen to gain an instant North American presence.

Mark McMurray, a principal with Calgary boutique firm Kobayashi Partners that specializes in oilpatch divestitures, says takeover talk always heats up when there's really strong cash positions in the industry.

"It's not unexpected that you'd see discussions going on in the market with guys that are sitting on a pile of cash," said McMurray.

"And it beats the alternative to buying back your stock, which often signals a lack of investment opportunities."

McMurray also expects further oilpatch consolidation.

Deals could occur before the year-end reporting period of next spring as companies who are at risk of falling short on their own organic growth look to acquire extra reserves.

And later on next year, McMurray expects stronger companies to start flexing their muscles.

"We'll start to see some reactive mergers where there's such a difference in value that the strength of the quality players is going to be predatory on the weaker parts of the market."

© The Canadian Press, 2005

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