A Bonavista pump jack in a farmer's field with the Rocky Mountains in the backdrop just north of Calgary, Alta, Oct. 24, 2019.Todd Korol/The Globe and Mail
Consolidation in Canada’s energy sector has advanced with Tourmaline Oil Corp. TOU-T buying Bonavista Energy Corp. for $1.45-billion to bolster its position in the Deep Basin region of Western Alberta.
The half-cash-half-stock transaction will boost production at Tourmaline – already the country’s largest natural gas producer – by roughly 10 per cent and is expected to add $450-million in annual net operating income for the next three years, the company said Monday. Tourmaline will also acquire Bonavista’s $1.7-billion worth of tax pools, which can be applied as deductions in future tax years.
Alongside the acquisition, Tourmaline also announced plans to raise its dividend for the 10th time since instituting quarterly payouts in 2018, to $0.28 per share. Tourmaline shareholders will also receive a special dividend of $1 per share on Nov. 1, which will mark the ninth consecutive quarter where the company offered an extra payout.
The Bonavista deal is the latest example of an accelerating trend of consolidation among oil and gas producers across Canada and the United States.
“It’s not like a frenzy, but I would say it is starting to pick up again,” Tourmaline chief executive Michael Rose said in an interview. “There has been more on the U.S. side of the border than there has been here, but it really got started last year.”
Whitecap Resources Inc. SPGYF kicked off the latest round of M&A in June, 2022, when it agreed to pay $1.9-billion for XTO Energy Canada, which marked its fifth major acquisition in less than two years.
The first three months of 2023 included two major Canadian energy deals, Baytex Energy Corp. BTE-T buying Ranger Oil in February for $3.4-billion. Almost exactly one month later, Crescent Point Energy CPG-T agreed to pay $1.7-billion in cash for Spartan Delta Corp.’s assets in the Montney region of Alberta.
Strathcona Resources Ltd. SCR-T is perhaps the clearest example of the current trend, having been formed in 2020 through the merger of two companies – Strath and Cona – backed by private equity firm Waterous Energy Fund. The company has spent billions of dollars on acquisitions to grow its production from just 5,000 barrels of oil a day when it was first formed to 185,000.
In August, Strathcona made its 10th major acquisition with the purchase of Pipestone Energy Corp., itself the product of a merger in 2019 between Pipestone Oil Corp. and Blackbird Energy Inc. Waterous is now working toward taking Strathcona public.
In September, Peyto Exploration PEY-T agreed to pay $468-million for Spanish energy company Repsol’s assets in Alberta’s Deep Basin. Although by far the largest move to consolidate the North American oil and gas industry came just last week when Exxon Mobil Corp. made a US$59.5-billion megadeal to acquire Pioneer Natural Resources – its biggest transaction since merging with Mobil in the late 1990s.
For Tourmaline, Mr. Rose said the COVID-19 pandemic environment spawned the company’s third “big burst of M&A” in its 15-year history. The first was during the financial crisis when “good assets were for sale and the valuations were good,” he said, and the second came when Tourmaline bought Duvernay Oil Corp. from Shell in 2016.
His company had been eyeing Bonavista for more than two years, he said. Caught early in the pandemic with nearly $1-billion in debt and rapidly falling prices, Bonavista delisted from the Toronto Stock Exchange in late 2020.
Shareholders at the time received just five cents per share for their holdings. Bonavista shares had previously been worth more than $5 apiece as recently as 2017 and were north of $30 per share in 2011.
“They ended up doing a good job eliminating their debt, and there is an attractive free cash flow yield,” Mr. Rose said. “And we think we can lay our lower cost structure on it and generate that much more free cash flow.”
As for whether Tourmaline plans to take further advantage of the ongoing consolidation trend, Mr. Rose said he would rather wait for good deals to come to him.
“If something comes up for sale and it fits our criteria then we will do something,” he said, “I’d rather that then go out hunting.”