Canadian Hunter Exploration Ltd., the latest in Calgary’s energy patch to announce a merger with a U.S. producer this year, may be one of the biggest to be seduced in a buyout, but it won’t be the last, predicted CEO Steve Savidant this week. Questioned about which Canadian companies could next be on the radar screen for mergers, Savidant also had the answer for that.”There can’t be a heck of a lot more, because there’s not a lot more companies.”

Actually, about 600 small and large Canadian producers remain independent, with PanCanadian Energy, Alberta Energy Co. Ltd., Talisman Energy Inc., Petro-Canada and Penn West Petroleum Ltd. seen as possible takeover targets. However, the signs are there for more Canadian acquisitions by U.S. producers. In fact, it’s becoming fairly routine. In less than two years, foreign owners — not just American — have taken control of nearly 48% of Canada’s energy sector, a gain of more than 10% in the time period.

With commodity prices low and the Canadian dollar worth less, U.S. producers with spare cash have begun a new series of announcements to acquire more reserves, especially in Canada. But low prices are not the only factor. Several analysts said the takeovers are in part fueled by the events of Sept. 11, which “inevitably increases the attractions of secure North American energy supplies” and may discourage deals in more volatile parts of the world.

The clues are definitely there. Take for instance Houston-based Burlington Resources Inc.’s bid to pay $2.1 billion in cash (C$3.3 billion) for Canadian Hunter. A week before the deal became reality, Canadian Hunter’s stock climbed 33%. This week, Calgary-based producers PanCanadian Energy, Rio Alto Exploration Ltd., Penn West and Alberta Energy Co. also have seen their stocks spike and have had heavier trading volumes.

PanCanadian Energy, for instance, began last week with a stock price below $24. By the end of the week, it had risen about $4. PanCanadian, cut loose from former parent Canadian Pacific Ltd. in a share distribution, is seen as the likely candidate for a takeover. But other independent Canadian stocks have seen similar bumps in the past few weeks.

The senior executive of a Canadian production company privately expressed the takeover mood in a nutshell. He observed that U.S. gas producers “appear to be so hungry for new reserves and sheer size” that Canadian companies are in danger of losing their only defense against takeovers, that is, strong share prices that make them too expensive to easily swallow up. However, at the moment, price appears to be of no concern to U.S. interests.

Acknowledging that his company had paid a premium price for Canadian Hunter, Burlington CEO Bobby Shackouls said in Calgary last week, “you can’t buy a Mercedes for a Ford price.” The president of Burlington Resources Canada Energy, Mark Ellis, added that “this whole transaction is not founded on cost savings. This is founded on growth and growth opportunities.”

Burlington and Canadian Hunter’s deal was the 12th major announcement by a U.S. company to takeover a Canadian producer, and nearly all of the deals have been friendly ones (see related story). As important, however, is the amount of investment the latest mega deal represents. Since the beginning of 2001, U.S. companies have spent an unprecedented C$40 billion, including equity and debt, on Canadian companies.

Most striking is that even though energy prices are low, U.S. acquisitions north of the border seem to be picking up speed. In the past month alone, U.S. takeover announcements have totaled C$23.7 billion ($17 billion), with Devon Energy Corp.’s purchase of Anderson Exploration and Duke Energy’s acquisition of pipeline giant Westcoast Energy among the deals to be announced (see NGI, Sept. 10; Sept. 24). And the year’s not over yet.

Since 1998, Canada has seen 33 of its mid-sized and large oil and gas producers be swallowed up in a huge period of consolidation by U.S. buyers with familiar names: Apache Corp., Anadarko Petroleum, Devon, Duke Energy, Conoco and Shell.

Analyst Peter Linder of Research Capital based in Calgary said U.S. producers “see Canada as, effectively, another state.” Most of the deals are friendly and there’s little fanfare when a merger or acquisition is announced. “To a Burlington,” he said, “buying production in Wyoming, Texas or Alberta…there’s really no difference.”

Flush with cash from high natural gas prices earlier this year, many companies held fast on new investments over the summer. Now that commodity prices have cooled and the Canadian dollar is slumping, many are seeing bargains in the gas-rich fields both onshore and offshore Canada, including the Western Canadian Sedimentary Basin and Sable Island, despite a downturn in the overall economy. It’s effectively hedging for an expected upswing in prices next year.

Houston-based Apache, which picked up Fletcher Challenge Energy’s Canadian assets earlier this year (see NGI, March 12), remains on the lookout for more Canadian buys. In June, COO F. Steven Farris told an analysts group that unless there was a “major breakthrough in the Lower 48” in the next five years, Apache’s energy future will be outside of the United States, most likely in Canada, Egypt and Australia (see NGI, June 25.)

“They obviously think they are getting a bargain,” Frank Atkins of the University of Calgary said of the many U.S. buys. He said U.S. producers have an “insatiable need for oil and gas,” and with U.S. production areas already oversaturated, many have looked North.

But how many bargains could still be out there? “There’s no reason to think we are done,” said Frank Sayer of Sayer Securities. Since 1987 the firm has tracked Canadian oilpatch mergers and financing, and Sayer believes the market is due for more takeovers. In a report he released in September, Sayer said, “as opposed to asset transactions, corporate deals have the benefit of adding an instant operating presence, usually including staff, undeveloped land and interrelated exploration and production functions. One example of a U.S. company achieving this result was Anadarko’s purchase of Berkley (Petroleum), which was completed in March” (see NGI, Oct. 1; Feb. 19).

Many fear that mergers with U.S. companies will hurt the Canadian economy — especially in Calgary where many are headquartered — and companies will lose their identity but also jobs. Canadian Hunter’s Savidant said the merger activity is not necessarily a worry for Canadians because few job losses have been announced, but he knows that downtown Calgary may be losing its identity as the center of the Canadian oilpatch. “Calgary is not losing jobs, but they are losing head offices,” he said, “and I think the head offices represent vitality in any city.”

Meanwhile, as Canadian officials point out, the reserves of all acquired Canadian companies are still in Canada and are still subject to federal and provincial rules, regulations and taxation.

The U.S. takeover announcements for 2001:

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