Falling crude prices and a cooling North American economy may force some smaller Canadian producers into partnerships or mergers and reverse a slowdown this year in oilsands investment.

Companies that lack sufficient cash flow to fund expansion may need to join with competitors to keep growing if oil prices, which slid below US$80 a barrel last week before rebounding to more than US$85 on Aug. 12, continue to be volatile, said Jason Holtby, head of investment banking for Raymond James Ltd. in Calgary.

Bonterra Energy Corp., Southern Pacific Resource Corp., Silverbirch Energy Corp. and Arc Resources Ltd. are among oil-sands producers with market values below about $7-billion that may feel pressure to combine.

"If they can't get the capital, then the value creation may be easier" by combining companies, Mr. Holtby said. By uniting, "they will have bigger scale, bigger ability to complete projects, more liquidity - all the natural factors that will help get them to the market sooner rather than later."

Rising oil prices that topped US$100 a barrel earlier this year put the brakes on investments in Canada's oil and natural-gas sector as crude reserves became more expensive. Canadian energy deals have plunged 63% this year through Aug. 11 to US$8.5-billion worth of transactions, according to Bloomberg data. In the same period a year earlier, there were US$22.73-billion worth of transactions.

With 175 billion barrels of recoverable oil, Alberta has the third-largest crude reserves in the world after Saudi Arabia and Venezuela, according to the Canadian Association of Petroleum Producers. Those resources are expected to bring $2.08-trillion in investments over the next 25 years, the Canadian Energy Research Institute estimates.

Alberta's oil sands have attracted the interest of global oil companies such as Exxon Mobil Corp. and Total SA, as well as upstart producers such as Silverbirch and Connacher Oil & Gas.

Connacher, with a market value of about $331-million, this month hired the Rothschild Group to help the Calgary-based oil producer look for partners for its Great Divide oilsands assets. Connacher is seeking funds for an expansion that would boost production to 44,000 barrels a day from 20,000 now.

A lack of financing options may be another factor driving cash-poor companies to find a partner or slow expansion plans, said Ryan Kubik, chief financial officer of Canadian Oil Sands Ltd., Canada's seventh-largest oil and gas company by market value. "If sellers are out there and can't get financing they figure they're not getting valuations they deserve and that creates an opportunity," Mr. Kubik said. "We're not as driven as others by acquisitions" and the company plans to develop its existing assets, he said.

Slower economic growth globally may restrict access to financing for smaller producers because financiers may be reluctant to lend if crude prices fall lower, said Greg Stringham, vice-president at the Canadian Association of Petroleum Producers, an industry lobby group. The International Monetary Fund on June 17 cut its forecast for global economic growth to 4.3% this year, from 4.4% two months previously.

Crude for September delivery fell to a 10-month low of US$79.30 on Aug. 9 and traded at US$87.70 a barrel on the New York Mercantile Exchange. Prices fell 4.1% this year after touching a 31-month high of US$114.83 a barrel on May 2.

For oil-sands projects to be viable in Canada, producers need prices to range from US$60 to US$70 on average, said Jackie Forrest, director of global oil for IHS CERA, an energy strategy and research firm.

Interest in buying smaller producers may be limited among Canada's biggest oil and gas companies, such as Suncor Energy Inc., because they have two or three years' worth of drilling inventory, Raymond James' Mr. Holtby said.

International oil companies such as China's Cnooc Ltd. and Sinopec Group, which have invested in oil-and-gas producing areas all over North America to help gain expertise in developing shale formations, may be among more likely buyers. The companies also have acquired oil-sands assets or formed partnerships to diversify their access to crude supplies. Sinopec paid US$4.65-billion last year to buy a stake in Syncrude Canada Ltd., while Cnooc on July 20 announced it would spend US$2.1-billion in cash and debt to acquire Opti Canada Inc.

During the 2008 recession, oil prices that plunged to a low of US$33.87 in December of that year forced even the largest companies such as Suncor to temporarily halt expansion plans. Since then, many of the bigger companies have focused on conserving cash to guard against another decline. Some have accumulated enough of a cushion to continue funding expansion plans, said Mr. Kubik of Canadian Oil Sands.

"We do have a strong balance sheet right now, we can weather the storm," he said. "And that may open up opportunities for companies such as ourselves where you have smaller companies relying on financing in order to execute those growth plans."

Most smaller companies have less of a cushion. Arc Resources had short-term assets of cash and nearcash items of $2.2-million at the end of the second quarter and Silverbirch held $47.2-million at the end of the first quarter. That compares with $3.1-billion for Suncor, the largest Canadian energy company.