It took three decades, but an American natural gas producer has finally scored a coup that shows the walls of Canadian economic nationalism have crumbled.
When Devon Energy Corp. of Oklahoma City closes its takeover of Calgary’s Anderson Exploration Ltd. by the end of this year, the transaction will include assets with a long pedigree that Canadian authorities once scrambled to protect from foreign acquisition. The package that will make Devon one of the top 10 producers of gas in Canada includes the assets of Home Oil, an outfit with roots in western Canada stretching back to the industry’s embryo days before the Second World War. Home’s founder, a stellar Alberta-bred entrepreneur named Bobby Brown, is still fondly remembered by industry veterans. Anderson bought Home in the mid-1990s.
As the bygone “energy crisis” and crusades for national energy self-sufficiency rose to a peak in the 1970s, an aborted takeover attempt on Home by the old Ashland Oil organization triggered intervention by the Liberal government in Ottawa that culminated in creation of the Foreign Investment Review Agency to police foreign takeovers. While the agency rarely blocked transactions outright, its mandatory approval process served as strong discouragement by requiring thorough disclosures of intentions and binding pledges to provide “net benefits” by raising investment and employment.
FIRA was dismantled and replaced with much gentler Investment Canada by the country’s Conservative government of the mid-1980s and early-90s. Veterans of the Canadian scene saw a telling sign that the political mood remains completely different from the activist ’70s when no one, even among critics of the industry and the open border, so much as mentioned the heritage changing hands in the Devon-Anderson transaction.
Moving to nip any potential resurgence of economic nationalism in the bud, the Canadian Association of Petroleum Producers calculated and announced that foreign ownership of Canadian production was still only about 48% compared to 75% in the 1970s. Likewise, little was said in the old nationalist vein when Burlington Resources stepped forward from Houston to buy another pillar of Canadian gas production, Canadian Hunter Exploration.
Part of the explanation for the accepting mood lies in disbelief that any more such deals will come together. At the oil and gas shares boutique of Peters & Co., for instance, analysts told the firm’s customers in a fall newsletter that conditions are not ripe: “While the takeovers of Anderson and Hunter provided huge premiums to share prices, the economics used by the vast majority of the energy industry and investors do not support these types of valuations for going-concern companies.”
The deals were unusual enough for the Canadian investment community to coin a new term for the tactic used for the last three big takeovers north of the border by U.S. companies: Gulf Canada by Conoco for US$4.3 billion, Anderson by Devon for US$3.4 billion and Canadian Hunter by Burlington for US$2.1 billion.
Enter the “bear hug.” As opposed to hostile takeovers, which usually begin with a low offer, and often end in a different transaction from the one intended, bear hugs open with such high bids that resistance by appealing for “white-knight” alternative bids is futile. Among leaders of senior Canadian oil and gas houses still standing, such as Talisman Energy Inc. President Jim Buckee and Nexen Inc. President Charlie Fischer, the bear hugs raised a question. Is there any guard left against uninvited takeovers?
Buckee observed that in the contemporary absence of economic nationalist governments, “the only proper defence in Canada is having a strong share price.” Bear huggers crush that protection: “They’re prepared to pay outrageous prices.” But the Canadian industry is not appealing for the federal government to revive vigorous policing of foreign takeovers. Although Talisman ranks among potential targets as one of the top five Canadian gas producers with output nudging one Bcf/d, Buckee is counting on its international oil interests – and especially its controversial project in Sudan – to ward off U.S. suitors.
Fischer maintains there is something that legislators on both sides of the border could do, and that would be to ensure there is less — not more — interference with international capital movements. He predicts foreign investment controls would backfire: “If the government were to impose restrictions on ownership as we had in the past, you would take away one opportunity for shareholders to realize value. We would become less desirable. We would trade at lower valuations. We would have a hard time raising capital because we would not be competitive. You’d die the death of a thousand cuts.”
Fischer suggests the answer is to bring investment markets in both Canada and the U.S. more clearly into line with the free trade ideals prevailing on other fronts such as the movement of energy commodities. He suggests the odds of survival would improve if investment institutions, such as pension funds, from both countries were able to freely trade in shares across the border. Currently there are restrictions on holdings of foreign stocks that are rooted in long traditions of rating them naturally riskier than home-grown varieties. Easing these restrictions would result in bigger, more liquid markets for shares of Canadian companies and stronger prices. Fischer holds out for “pure competition. In pure competition, I think any good Canadian company can hold its own.”
Canadian companies could use a lift, Fischer suggests. At Nexen, “I don’t think we’re significantly at risk. But in a general sense there is a drive to size. As people bulk up, all of us are at risk. Who would have guessed Mobil or Amoco would disappear? All the sharks are swimming. We’re looking at everybody. Everybody’s looking at us.”
©Copyright 2001 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 1532-1266 |