September 15, 2020
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In recent weeks, several high-profile mergers and acquisitions have caught the attention of the industry. These events have served as a beacon, announcing that after several quiet months of recovery from the dual industry crises beginning in March, A&D work has begun in earnest. But while a new season of mergers, acquisitions, and divestitures may be upon us, recent deals suggest that the A&D world may have changed since the beginning of this year.
Analysts have looked at recent deals and the landscape of the Western Canadian Sedimentary Basin and noticed a more aggressive approach. In an article written by Chris Varcoe in the Calgary Herald, Martin Pelletier, a portfolio manager at Wellington-Altus Private Counsel noted, “You have investors saying the status quo clearly isn’t working. You are seeing friendly deals but also seeing hostile ones, which typically doesn’t happen in the Canadian oilpatch”.
In this type of environment, it’s no longer enough to limit your A&D pursuits to publicly available opportunities. Due to the incredible pressures heaped upon producers, many companies have struggled throughout 2020 and will either look to merge or divest or will be forced to by their lenders. As a result, producers looking to expand their operations and balance sheets will find it makes more sense to do so via acquisition rather than drilling.
The issue is that a lot of acquisition or merger opportunities may never become publicly available. Those forced to divest might not be actively looking to do so until an offer is thrust upon them. Those looking to acquire in this challenging environment need to be proactive in their A&D scoping. In the Calgary Herald article, Rafi Tahmazian, a senior portfolio manager at Canoe Financial suggests, “there’s a certain degree of politeness, and then there’s just damn survival. That’s the kind of environment we’re in today”.
At XI Technologies, we see this change in the air. “Although we see certain companies struggling to survive, we are also talking with many different teams that see the opportunities available and are in a good position to be able to act”, states VP of Business Development Jennifer Baerg. “The conversations we’re having with clients have changed. We are helping companies with broader scoping strategies that had largely taken a back seat during resource play development over the last several years. We used to hear more about the lack of access to capital, or that capital was sitting on the sidelines waiting to enter. From recent conversations, we’re cautiously optimistic that our industry is ready to enter another consolidation phase which presents opportunities for growth.”
Interestingly, while this sort of strategy is quite different than the processes more commonly employed prior to the shutdown, it’s not unprecedented. What we’re seeing in recent A&D activity is similar to trends from a number of years ago, when $30 billion in consolidation ruled the day. Back then, it was standard practice for companies to proactively search for opportunities using public data outside of a data room.
These companies with capital, or with solid financials, are now looking to fill in the blanks. Where are target acquisitions focused? Who are the working interest partners and do they also meet buyers’ criteria? What analogous plays would make sense to pursue? What are the reserves and what are the associated liabilities? Since the number of publicly traded companies has decreased over the past 5 years, the only option is typically government-collected data that can be time-consuming to correlate and evaluate to find the best opportunities available.
So, this is less a radical change in A&D philosophy and more of a return to form. Acquisition and Divestment strategy is coming full circle, which leads to the question: are your processes able to support this current environment? Do you have robust methodology to look for quality assets that may not be currently on the market?
XI Technologies has been in the A&D scoping game since the late 1990s, with tools built and perfected for strategic acquisition identification and evaluation. AssetBook is still the best source for working interest production and has evolved over time to meet the changing needs of the industry and to continue to help clients make better decisions. To get a sense of how you can use AssetBook to compete in the current, more aggressive world of A&D, click here to watch a short demonstration.