Varcoe: Extra M&A motion anticipated in oilpatch, however not by Crescent Level after $4B makeover

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Craig Bryksa has been serving to drive a serious M&A wave within the Canadian oilpatch this yr, because the CEO of Crescent Level Power has been quickly remaking the oil and fuel producer.

This specific tide, nonetheless, is about to subside.

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The top of Crescent Level Power says after securing two main offers this yr value greater than $4 billion — together with final week’s $2.6-billion takeover of Hammerhead Power — the Calgary-based producer will “take a superb lengthy pause” on the acquisition entrance, however he thinks trade M&A motion will proceed into subsequent yr.

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“I do assume as (the sector) strikes into 2024 you will see extra. Should you take a look at what’s been taking place in the USA on that entrance, Canada all the time appears to be a bit of bit behind,” Bryksa stated in an interview.

“If you look into 2024, there’ll be some exercise on that entrance. I imply, clearly not for us — with us simply having achieved this right here on the again finish of the Hammerhead deal — however I do assume you’re going see extra.”

With simply seven weeks left on this yr, the Canadian oil and fuel sector has seen a rising variety of mergers and acquisitions, with offers value about $15.8 billion in mixed worth, barely forward of the $15.4 billion recorded final yr, in response to Sayer Power Advisors.

In the USA, ExxonMobil made a mammoth transfer final month with the US$59.5-billion takeover of impartial Pioneer Pure Assets. Two weeks later, rival Chevron struck a deal to purchase Hess for US$53 billion.

In Canada, the biggest transaction of this yr up to now noticed ConocoPhillips spend $4.4 billion to accumulate oilsands property from TotalEnergies, however the subsequent two greatest offers have been spurred by Crescent Level as a part of its ongoing transformation.

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In just some brief years, Crescent Level has bought off some properties in the USA and Canada, and bought extra prolific property within the large Montney and Duvernay formations in Alberta.

Bryksa, who took over the corporate’s helm in 2018 after the departure of longtime CEO Scott Saxberg, has spearheaded the overhaul, which started with Crescent Level specializing in bettering its steadiness sheet.

On the finish of 2018, the corporate’s web debt topped $4 billion, whereas manufacturing within the fourth quarter averaged 178,000 barrels of oil equal (boe) per day. The next yr, it disposed of some property in Utah and southeast Saskatchewan.

In February 2021, Crescent Level started to shift gears, buying property within the Duvernay formation in Alberta from Shell Canada for $900 million, including about 30,000 boe of manufacturing in a brand new development space. Crescent Level unveiled in December 2022 that it had agreed to buy Kaybob Duvernay properties from Paramount Assets for about $370 million.

This yr, the M&A exercise has picked up.

Crescent Level introduced in March it could purchase the oil and liquids-rich property within the Montney from Spartan Delta Corp. for $1.7 billion in money. These properties added 38,000 boe per day of manufacturing and room to develop.

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Final week’s take care of Hammerhead is the biggest one but.

The cash-and-shares acquisition, which incorporates $455 million in assumed debt, provides about 56,000 boe per day of manufacturing, together with infrastructure within the Montney. “It matches us hand in glove with what we’re doing,” Bryksa stated Friday.

As soon as closed, it would flip Crescent Level into the seventh-largest Canadian petroleum producer.

The corporate expects manufacturing subsequent yr will common about 204,000 boe per day, with capital expenditures of about $1.5 billion. About 80 per cent of its spending can be directed to the Montney and Kaybob Duvernay, with the remaining spent on Crescent Level’s long-cycle property in Saskatchewan.

“The strategic precedence for the corporate over the past three years was (to) remodel the portfolio — test,” he stated.

“We’re going to deal with our steadiness sheet and considerably strengthen that right here over the subsequent 24 months. After which we’re going to look to construct out our return of capital to our shareholders.”

Bryksa stated the corporate’s five-year plan would see it develop organically to about 260,000 boe per day by 2028.

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Nevertheless, for the reason that deal was introduced, Crescent Level’s shares have dropped by about 12 per cent.

“If you will have an acquisition technique, it’s a must to do it (at) a measured tempo,” stated Michael Zuk, managing accomplice at Athena Capital Markets in Calgary.

“It may very well be one per yr or it may very well be one each 18 months. However, definitely, the dimensions and scale that Crescent Level has tried to do . . . is simply too aggressive.”

Laura Lau, chief funding officer with Brompton Group, which owns a small variety of Crescent Level shares, stated the timing of the transaction got here as oil costs slumped, though she stated there might also be concern concerning the earlier administration’s monitor document of buying property.

“I feel it’s a mixture of all the pieces — plenty of offers currently, dangerous timing, and I feel there’s most likely some ideas, ‘Is Crescent Level going again to the previous playbook the place they might continually be shopping for stuff?’ ” Lau stated.

Eric Nuttall, a senior portfolio supervisor with Ninepoint Companions, one of many bigger shareholders in Crescent Level, agreed the timing of the deal got here as benchmark oil costs fell final week, together with a $5-a-barrel drop within the following two days.

But, he’s assured concerning the deserves of the brand new transaction.

“They’ve transitioned . . . to now sitting on stock the place they’re drilling among the most financial Montney wells which have ever been drilled in Canada,” Nuttall stated.

“That’s one hell of a change.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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