January 17, 2013
A rebound in merger and acquisition (M&A) activity during the second half of 2012 could continue this year, however recent changes by the federal government regarding transactions by foreign national oil companies will likely result in more joint ventures in the Canadian oilpatch.
Late last year Industry Canada introduced new rules limiting control of oilsands companies by foreign state-owned entities. The government said future bids for control of oilsands businesses by state-owned enterprises (SOEs) would be allowed only in "exceptional circumstances."
And Scott Cochlan, Calgary-based partner with Torys LLP, says that has changed the landscape for SOEs looking to invest in Canada's oil and gas sector.
"These new rules effectively block a control acquisition of the oilsands entities and that I think is going to lead to more structuring of creative joint ventures [JVs]," he said. "More JV investments, minority investment positions and comparable structures -- these I think will be in some ways more complex structures than perhaps we've seen before."
Cochlan said another factor supporting increased foreign investment in the domestic natural gas space is that such entities might want to get a foothold in, or access to, proposed liquefied natural gas (LNG) projects in Western Canada.
"If you look at the deals last year, three of the five largest deals of foreign buyers in Canada were for natural gas. So I think that trend will continue as commissioning of LNG projects progresses and more certainty is obtained around those projects," he said.
"Obviously it's necessary to secure natural gas for those projects and large reserves are necessary to support such projects. Again, Canada has a much cheaper source of reserves and supply as a result of the difference of natural gas prices in North America to Asia."
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