Canadian oil and gas companies are officially shark bait. And we’re not talking about the small and medium-sized shops. The biggies — think Suncor Energy Inc., EnCana Corp., Canadian Natural Resources Ltd., Talisman Energy Inc. and Nexen Inc. -- could all be targets for the super biggies, according to Terry Peters, an analyst at Canaccord Adams, riffing off an article in Petroleum Intelligence Weekly.

“In case you didn’t think there was money around, the super majors have lots,” Mr. Peters said in a report last week. “The super majors have money, motive and opportunity and some of our larger Canadian companies appear vulnerable.”

As of June 30, 2008, Exxon Mobil Corp., Royal Dutch Shell plc, Total S.A, and Chevron Corp. collectively have about $65-billion in cash, with more pouring into their coffers at current oil prices.

To put that number in perspective, EnCana’s market cap its now $33-billion, down 54% from its peak of $71-billion. Suncor’s market cap is now $26-billion, down from $71-billion; Canadian Natural’s market cap totals $29-billion, down from $61-billion; Talisman rings in at $11-billion, skidding from $27-billion; and Nexen rounds out the five with a market cap of $9-billion, down from $23-billion. These five have lost an average of 57% of their market caps from their peak levels, according to Mr. Peters’ math.

There’s precedent for mega-mergers during rough times. Between 1998 and 2001, Exxon and Mobil Corp. became one, BP plc made Amoco Corp. disappear, Conoco Inc. and Philips Petroleum Co. merged, as did Chevron Corp. and Texaco Inc. Grand total of this merger party? $165-billion, Mr. Peters noted. That’s $57-billion more than the combined market caps of the five potential Canadian takeover candidates.
With sluggish economies pushing down oil and gas prices, the world’s largest energy companies need to focus on fundamental production and reserve growth, rather than simply riding high on energy prices. As a result, the oil sands could well suit the fancy of the international powerhouses. The weakening Canadian dollar helps, too. Enter Suncor and its Canadian cousins. Or, perhaps, exit Suncor et. al.

Carire Tait


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