Endangered species: Canadian small oil and gas companies under pressure to merge or die
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The same issue has not plagued the larger companies in the Canadian oilpatch, with Suncor Energy Inc., Canadian Natural Resources Ltd., Cenovus Energy Inc. and Husky Energy Inc. tapping the debt market with little trouble this year, Chari said.
It’s the smaller producers that are feeling the heat from impatient bankers and financiers.
“In terms of returns for both equity and debt-holders from energy companies has been so poor for a number of years that the market doesn’t necessarily have the confidence that these companies will be good stewards of their capital,” Chari said.
It’s the smaller producers that are feeling the heat from impatient bankers and financiers
As creditors’ patience runs out, a handful of opportunistic acquirers, such as Waterous, are buying up assets at bargain basement valuations.
“Consolidation has never been more urgently needed than right now,” Waterous said in a recent interview, noting that small energy companies have been shut out of both debt and equity markets and without access to capital, they are “effectively orphaned businesses.”
“These orphaned businesses need to come together,” he said. “We’ve been very aggressive in doing this.”
Waterous, who divides his time between Banff and Calgary, has been advising energy firms on deals for decades, with his own advisory called Waterous & Co. beginning in 1991. In 2005 he sold the firm to Scotiabank to create Scotia Waterous. He left Scotia in 2017 to set up the private equity Waterous Energy Fund. And after years of watching investments in the Canadian energy sector decline, he says there are major opportunities for consolidation.