Household names in Canadian oil vanish under nationalist pressure
Up to three dozen of the household names in the Canadian oil patch may vanish within the next couple of years. Some of them have already disappeared, and still others are about to go.Skip to next paragraph
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Bought out or absorbed, privately held junior oil companies, medium-size independents, and even the local subsidiaries of the lofty multinationals might have their ranks decimated under the growing pressure of Canadian economic nationalism.
Ian Doig, manager of the Oil and Gas Department of Merrill Lynch Royal Securities Ltd. here, says the "Canadianization" of the foreign-dominated industry is picking up speed. "It was going to happen to some degree, but the National Energy Program (NEP) seems to have quickened the pace."
Mr. Doig said in an interview that despite the generally adverse petroleum industry reaction to the NEP of last fall, oil and natural gas in the ground "have not depreciated." On the contrary, recent transactions, whether of a voluntary kind or shotgun affairs, have actually marked up the price of proved hydrocarbon reserves by a minimum of 25 percent and, in some instances, by twice as much.
Takeovers now tend to happen at a "fast clip," Doig noted.
He points out that Ottawa's new fiscal and energy policies have created "an opening" for corporate acquisitions and, inevitably, "some people take advantage of it."
Some of the purchasers can conclude their deals here on the spot. Others pursue their prey beyond national boundaries.
US critics (and often the victims) of such free-enterprise zeal frequently allege that the Canadians tend to go beyond the bounds of proper corporate conducts.
According to Doig, prices now paid for proved western Canadian reserves that make up the bulk of a target company's assets are fast approaching the values at present recognized in the United States when an oil company is acquired.
"We are seeing $7 and $8 [Canadian] paid for oil and up to 90 cents [Can.] per thousand cubic feet of gas," he said.
Those figures for "raw energy" in the ground are much less than the wellhead price of about $18.75 (Can.) for oil and about $2 (Can.) for gas. Because it takes time to produce, oil or gas in the ground is cheaper than that on the surface.
Doig warns that the implementation of the NEP, which has majority Canadian ownership of the domestic petroleum industry as its ultimate goal, and preferably by state-owned or-controlled entities, "will not happen without pain or for that matter international repercussions."
Doig says acquisition strategy varies out of necessity, according to the trophy sought. There are one-step deals involving only a few principal sales and ready cash. But, as a rule, a complete acquisition of any size is usually a complex transaction involving thousands of shareholders, several regulatory agencies, and a massive line of bank credit.
All proposed transactions are predicated on future higher oil and gas prices, which normally would recoup the purchase cost with a profit.
Doig sees Canadian Occidental Petroleum Ltd. and BP Canada Inc. as top acquisition targets by Canadian public and state entities.
Amoco Canada Petroleum Company Ltd., Chevron Standard Ltd., LL&E Canada Ltd., all wholly owned by their respective parents, will either have to "sell out or put out stock," Doig says.
Buttes Resources Canada Ltd., Marathon Petroleum Canada Ltd., Murphy Oil Company Ltd., and Quintana Exploration Canada Ltd. are the "most obvious targets" in the medium-price range.