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There are a staggering amount of mergers and acquisitions happening in Western Canada’s oil and gas, as the fervent wheeling and dealing days are heating up the frigid winter.
In what could be seen as short-term pain for long-term gain, depending on who you talk to, the recent Crescent Point, Spartan Delta Corp, and Arc Resources mergers, Ovintiv, and even Inter Pipeline, have sent shockwaves throughout the industry after a Wacky Wednesday.
Is it the ability to drive down costs and increase efficiencies and synergies through scaling that is triggering these deals? Synergies can be challenging in an industry such as oil and gas due to market prices.
Companies are hopeful of increased production, although it takes time and doesn’t happen overnight.
Many companies are also hoping to increase exposure and their footprint in oil-rich plays such as the Duvernay and Montney, while also keeping an eye on other assets to add to their arsenal.
From value generation to increased market shares, and reduced competition in the field, companies are looking for ways to increase production.
The industry’s historic price crash and economic struggles in 2020 have made it hard for the smaller companies to stay afloat, seeing bigger sharks come into their pool. As the industry trucks along, it wipes out small companies that have high operating costs.
Consolidations are abundant, which affects people’s jobs and livelihoods. In a lot of cases with these mergers, thousands of jobs are lost, but the percentage of people continuing to work have their jobs for longer.
What do all these deals, and future deals, mean for the industry? With these large deals happening, who’s the next big acquisition we’ll see come into our inboxes? Further deals are likely as producers look to gain size and cut costs.
With COVID still dominating the news cycle and affecting projects and prices, businesses are still facing many operational challenges, looking to combine assets, hunker down, and ride out the storm of the pandemic.
The pandemic has many worried about what will happen next within the industry. The vaccine rollouts have been good news, while the Biden presidency has people concerned, driving the potential for more mergers south of the border. Many are wondering if the shoe will drop on an Exxon-Chevron merger.
The industry also faces a daunting future and fluctuating prices that cause concerns, as well as emissions goals and regulations set by governments.
Crackdowns and penalties are concerning for the smaller companies, yet a cost the big players can absorb. Given the current market, it’s important for the industry to be quick and agile in order to survive.
Mergers and acquisitions are crucial in any business and business strategy. Mergers have commonly been the oil and gas industry’s response to hard times and tough prices. The industry is in a position of consolidation, trying to do more with less, like the Moneyball model.
As 2021 unfolds, future mergers and acquisitions will have everyone’s attention.
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