Let’s Make a Deal: Opportunities and Concerns with E&P Consolidation

It has been two years since we last wrote about some of the hurdles facing acquisitions and dispositions in the oil & gas sector. In 2018 it was Statement of Concerns and objections to Notice of Assignments. I regret to report that the list of hurdles has only grown since then. Maybe I am an optimist, but I have not lost hope for deals just yet. 

The M&A market struggled through 2019 with producer’s inability to access either the debt or equity markets to fund transactions. This was compounded by the spread in what a seller considered to be an acceptable asset value versus what a buyer was willing to pay for the asset. In instances where the first two hurdles could be cleared and a transaction entered the due diligence phase, it generally fell apart due to legacy liability concerns. Throw in a global pandemic and a collapse in oil prices in 2020 and we have ourselves a party. A really depressing party. All of this culminates into an incredibly challenging time to close a deal.  

YET! Over the past two months, we have seen some major consolidation happening in the oil & gas sector in both Canada and United States, as well as clever solutions for deals weighed down by liability. We are starting to hear almost weekly announcements of corporate mergers or acquisitions, driven by lenders and management teams looking for comfort with scale. A new market has also developed, driven by liability acquisition companies looking to provide a solution to stranded assets and stalled transactions. In all instances, producers are finding new ways to survive after six years churning away in an oil downturn. These major consolidations are re-shaping the energy landscape in Western Canada and even though there will be downside to this, my rose-colored glasses see an ultimate net benefit. 

Last month my colleague Mike Newton wrote about the need for clarity when evaluating Asset Retirement Obligations (ARO). Industry lacks a standardized approach so we will be keen to understand how liability is being evaluated in these major transactions from an internal and external perspective. We will also seek to understand how two companies navigate the data merge of ARO reports that have different underlying methodologies for calculating ARO. This recent M&A activity reinforces the need for an industry accepted ARO methodology to avoid discrepancies and ensure liability data is blended seamlessly for financial reporting purposes.    

Now back to why I am still optimistic. When large companies start to consolidate, a re-evaluation of assets follows. The executives decide the focus of the new company and align the assets to fit that vision. Ideally, this opens underutilized assets for disposition opportunities. A prime example of this is the Husky and Cenovus transaction, followed shortly after by the Cenovus to Headwater disposition. Once neglected assets are now in control by management teams with access to capital that pursue development at a quicker pace than their predecessors. This infusion of capital and development trickles down to all facets of the energy sector, including the closure spaceThe number of active companies is shrinking but with that we can still get some reinvigoration in to assets that have been held by traditionally conservative producers 

In recent years we have seen a heightened focus on oil & gas liability from producers, investors, regulators, governments, and the public. The situation is ripe for innovation and the Western Canadian energy industry is uniquely positioned to lead the global charge in tackling legacy liability. We have a window of opportunity to flip the negative narrative surrounding oil & gas development and showcase the quality changes energy companies are implementing. As the industry continues to consolidate, I am hopeful we can rally together and find a common voice in this regard. 




Please contact Lindy Borggard at lborggard@360elm.com or (403869-5463 to discuss this article or the current M&A market.  Or at lborggard@skye-ar.com to discuss the Skye Asset Retirement liability transfer model. 

Recent Insights

  • Embracing HOP: Transforming Safety in Environmental Consulting

    At our environmental consulting firm, we’re always on the lookout for ways to enhance safety and performance. Recently, I’ve embarked on an eye-opening journey into Human and Organizational Performance (HOP). This framework has already provided invaluable insights into improving health and safety within our organization. Let’s dive into what HOP is all about and how…

    Read More

  • An Albertan working in Ontario

    During our last project in Southern Ontario our team visited the job site to lead a kick-off meeting. We were hired by our client who was responsible for a complex construction site, and there were numerous stakeholders. The meeting helped provide clarity on roles and responsibilities and gave sightlines on what stakeholders should expect over…

    Read More

  • Charting the Course: Navigating the Dynamic Evolution of ESG Reporting

    In today’s corporate landscape, sustainability isn’t just a buzzword—it’s a driving force reshaping the way businesses operate and interact with the world. Central to sustainability is ESG (Environmental, Social, and Governance) reporting, a practice that began as a niche concept and has become a global imperative, prompting organizations to reassess their strategies, redefine success, and…

    Read More

  • 360’s 2024 Sustainability Report – Optimization = Opportunity

    360 is proud to release our 2024 Sustainability Report. Themed Optimization = Opportunity, this year’s report summarizes highlights, successes, and changes for our growing organization. We reflect on a year that was dedicated to enhancement, modification, and our commitment to Making a Difference and Making it Simple. As part of the Optimization theme, the 360 Sustainability Committee had…

    Read More