Word to the Wise: Lack of critical mass could drive junior divestitures in 2019

February 13, 2019

This week’s Wednesday Word to the Wise explores the potential for increased divestiture activity in 2019 as Canadian Juniors deal with protracted market challenges. If you’d like our Wednesday Word to the Wise delivered directly to your inbox each week, subscribe here

A recent article announcing the offering of a corporate/asset divestiture by Wolf Coulee Resources Inc. may be a sign of things to come as the Canadian oil and gas industry continues to adjust to difficult market conditions. As the divestiture announcement notes, “The Company has long life reserves (1P RLI> 25 years), less than 50 shareholders and no bank debt but lacks the critical mass required to retain its health in the current environment.”

Wolf Coulee’s situation is by no means desperate, nor is it uncommon. Many Junior companies are re-evaluating their future and wondering if – despite having good assets and a strong team – they have the critical mass to carry them through until such time as pipelines are built and energy prices become less volatile and more lucrative. Certainly, this re-evaluation has been ongoing for the past few years, but whether due to entrenched management teams, differences in buyer/seller expectations, access to capital or a host of other reasons, 2018 proved to be a very slow year for A&D.

At XI, we are fortunate to have great relationships with a broad range of clients from start-ups to majors, boutique private equity firms to large multinational banks, small to large service companies, etc. A common prediction we are hearing is that conditions may be ripe and corporate/asset divestitures like this one may become more prevalent in 2019. This could present some excellent opportunities for those companies who are in a position to acquire or join forces with solid Canadian Juniors, thereby creating the next class of Canadian oil and gas majors poised to emerge as conditions improve.

If you’re looking to build critical mass through acquisition or merger with a strong Junior, be prepared to look at a lot of opportunities. XI’s industry contacts also say that these days, the number of deals you need to look at in order to get a deal done is ten times compared to several years ago. Being proactive is essential. Waiting until a deal is advertised means you’re competing with every other buyer, potentially forced to decide under pressure, and likely to pay more.

XI’s AssetBook is an ideal tool to proactively identify and evaluate potential acquisition opportunities using any parameters you see fit. The web-based application allows you to:

  • Look at more opportunities in a shorter amount of time in order to get a deal done
  • Have access to data prior to signing a CA and spending time in a data room
  • Identify assets that are not publicly available for sale and will potentially sell in a less competitive environment
  • Assess LLR and ARO risk earlier on in the process

To see how quickly and easily you can search for and evaluate opportunities with AssetBook watch a short demo video.