From the editor: Slow to the party [Gas in Transition]

In 2023, spurred by improved valuations and weaker commodity prices, global activity in mergers & acquisitions (M&A) exploded to more than $230bn, the highest in a decade and just a couple of billion shy of the all-time record.

According to Evaluate Energy, which tracks M&A activity world-wide, the US accounted for the lion’s share – about 90% – of that global spend, or a tick over $192bn.

And where did Canada rank in Evaluate Energy’s tabulations? A distant third behind Europe ($19.9bn), with just $11.5bn.

Sayer Energy Advisors reported a bit more juice in Canada – about $16.4bn in 2023 compared to $15.4bn in 2022. Five deals last year accounted for 70% of Sayer’s annual total: ConocoPhillips snapping up TotalEnergies’ Canadian assets for $4.4bn just months after they were acquired by Suncor Energy for just under $1.5bn, Crescent Point’s acquisitions of Hammerhead Energy for about $2.7bn and Spartan Delta’s Alberta Montney assets for $1.7bn, and Tourmaline Oil’s $1.5bn takeover of Bonavista Energy.

Other mid-tier producers also dabbled in the M&A pool, including Peyto Exploration & Development and Baytex Energy, but notably absent from the party were Canada’s biggest players, including Canadian Natural Resources, Cenovus Energy and Imperial Oil.

Sayer says M&A activity in Canada has been bedevilled by ongoing uncertainty on a number of fronts and it expects this to continue through 2024. Against that backdrop, it expects oil and gas M&A in Canada this year to fall to somewhere in the $12bn range.

Layers of uncertainty

At the top of the list putting a drag on activity is the oil and gas industry’s lack of confidence in the federal government. Prime Minister Justin Trudeau has worked diligently since his Liberal Party took power in 2015 to drive the oil and gas industry to extinction. In 2021, he named Steven Guilbeault, a former activist with Greenpeace, as his new environment minister and charged him with implementing and oil and gas emissions cap, which the industry sees as nothing more than a cap on production – a clear intrusion by Ottawa into provincial matters protected by the Canadian Constitution.

Now in his fourth mandate as Prime Minister, Trudeau learned his disdain for the oil and gas industry at the knee of his father, Pierre Elliott Trudeau, who hobbled the industry with the National Energy Program in the early 1980s.

Three decades later, son Justin – under the guise of streamlining oil and gas regulation and making it easier and quicker to gain approvals for major projects – brought in the Impact Assessment Act of Canada in 2019.

The IAAC had the effect of neutering the globally-respected National Energy Board (NEB) as the overseer of federal regulation. It’s now known as the Canada Energy Regulator (CER) and is little more than a review board – its decisions are merely recommendations which are forwarded to the Prime Minister and his cabinet for final approval.

Under the new IAAC – parts of which have been declared unconstitutional – and despite the CER’s mandate to speed regulatory reviews, major projects now take even longer to wind through the process, further muddying the waters for new energy projects and encouraging potential new investors in Canadian oil and gas to look elsewhere.

Trudeau’s carbon tax – the only one in the developed world – provides further disincentive to invest or expand in Canadian oil and gas.

The tax, ostensibly designed to discourage Canadians from consuming fossil fuels, was introduced in 2019 at C$20/tonne and has risen steadily since. From April 1 the tax is C$80/tonne, which on my latest natural gas heating bill equates to a carbon tax component of C$62.80 compared to the actual gas cost of C$38.36.

The carbon tax will be increased C$15/tonne each year until it reaches C$170/tonne in 2030, but what really causes potential investors in low-carbon energy in Canada is the fact there is no security in knowing that the tax will even survive that long.

With a federal election looming next year, Pierre Poilevre, leader of the Conservative Party of Canada, has promised to “Axe the Tax” and Trudeau is coming under increasing pressure from within his own circles to modify the levy in some way. He has already exempted fuel oil consumers in Atlantic Canada from paying the tax.

Layer on to all of that uncertainty the climate crisis, constant talk of a global recession and the impact that would have on commodity prices and continuing geo-political pressures around the world, and it’s not surprising that investors remain hesitant to invest in Canada, which is watching as its ranking amongst the most attractive investment jurisdictions in the world continues to slide.