Energy - OIL & GAS


Of Note:

Top oil executive believes that because Alberta has:

A difficult environment of spiralling costs
Constrained labour
And forthcoming higher royalties

He doesn't foresee foreign-based supermajors seeking to buy Canadian oil and gas firms
despite the recent drop in their valuations.

Instead, any acquisitions will probably be made by companies that already operate here.


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Oil patch takeovers seen as unlikely
Veteran says difficult operating environment in Alberta could make foreign majors leery of investing

Globe and Mail

November 12, 2008 at 11:14 AM EST

CALGARY — One of Calgary's most influential oil executives believes foreign-based supermajors won't seek to buy Canadian oil and gas firms despite the recent drop in their valuations because Alberta's operating environment is too difficult for newcomers.

Amid the global financial crisis, companies across Alberta's oil patch have seen their market capitalizations plummet because of more expensive costs of capital, as well as oil prices that have fallen by over half since hitting a record $147 (U.S.) a barrel in July.

However, Murray Edwards, vice-chairman of Canadian Natural Resources Ltd., said Alberta has a difficult environment of spiralling costs, constrained labour and forthcoming higher royalties. That means potential newcomers to the market, such as supermajors Chevron Corp. or Exxon Mobil Corp., will refrain from making deals because they don't have management with experience operating in Canada.

Instead, any acquisitions will probably be made by companies that already operate here, Mr. Edwards said at an investor day held by Canadian Natural Resources, the country's No. 2 oil and gas producer.

"Do we see [Exxon Mobil] or Chevron coming back? I think we've seen that movie before," he told reporters. "They left the country as they had a challenging time operating with the capacity and people constraints, and the smaller base of the reserves ... I don't think we'll see a sequel."

Buyers could also be scared off by complications in recent acquisitions by newcomers to the oil patch, such as Total SA's acquisition of Deer Creek Energy Ltd. and StatoilHydro ASA's purchase of North American Oil Sands Corp., Mr. Edwards said. Both Total and Statoil have pushed back their proposed oil sands projects, citing the cost of development and possible regulatory concerns.

"If you talk to [those companies] now, they'll admit that those transactions have been challenging because of a lack of understanding of the environment from a people [and regulatory] point of view," Mr. Edwards said.

Last week, Canadian Natural reduced its capital spending in 2009 by $3.6-billion (Canadian), freeing up cash flow to pay back debt from building its Horizon oil sands project. However, the company could look at making acquisitions if the right assets become available, Mr. Edwards said.

"There will be opportunities to acquire companies that don't have the same [balance sheet] flexibility as us." He added that Canadian Natural had recently looked at purchasing an unnamed Calgary-based company up for sale, but couldn't agree on a valuation.


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