Mergers and acquisitions (M&A) reached a peak of 10 per cent in 2014, but now only constitutes of 3 per cent of the industry’s market capitalization, and speculation has circled as to whether or not Athabasca Oil (TSX:ATH) will eventually join in. 

Even though M&A activity has slowed since its peak nearly 10 years ago, activity in the industry has picked up this year, so it’s not a stretch that the rebounding M&A activity might sweep up companies such as Athabasca Oil.

Before we answer, let’s get into the question of whether Athabasca Oil could potentially be bought out down the line, let’s evaluate what M&A activity in the oil and gas industry has looked like, particularly this year in Canada.

Oil and gas M&A activity

In terms of overall value in Canada, it is estimated that oil and gas M&A activity was down 26 percent in Q3 of this year compared with Q2’s total valuation of $4.6 billion. When compared to Q3 2022, M&A dropped by 39 per cent.

That being said, related deal volume increased 100 per cent in Q3 of this year compared to the previous quarter, but was down 35 per cent compared to Q3 2022.

These numbers aren’t surprising. Stepping back into 2022, geopolitical events and economic uncertainty continue to impact energy prices all around the world, which led to the sector’s lowest M&A activity since 2008, according to Deloitte.

In line with this, a correlation also exists between M&A activity and oil prices; with crude oil prices strengthening in 2023, M&A activity in the energy sector can be largely attributed to crude oil and natural gas-producing companies and assets.

“When times are good – such as in 2023, when crude oil prices have been strong and mostly rising – cash is more plentiful for all companies and M&A fever can really take off,” RBN Energy said in its report.

Some of the top M&A deals by value in Canada’s oil and gas industry include:

  • Whitecap Resources’ (TSX:WCP) acquisition of XTO Energy, which was announced in June 2022 for a valuation of $1.9 billion.
  • Pembina Gas Infrascture’s acquisition of PGI Processing for $1.3 billion in March 2022
  • Crescent Point Energy’s (TSX:CPG) acquisition of Montney oil and gas assets from Spartan Delta for $1.7 billion, announced in March 2023
  • Suncor’s (TSX:SU) acquisition of TotalEnergies’ interest in the Canadian oil sands for $1.47 billion, announced in October 2023.

Is Athabasca Oil next?

There’s been no official word on a potential Athabasca Oil takeover, but a number of reasons make it an attractive acquisition opportunity.

Case in point, the company has 1.3 billion barrels of oil equivalent (boe) 2P reserves, which is the total of proven and probable reserves. It also has a net cash position of $155 million and strong liquidity of $455 million, including $370 million in cash.

Its share price is also something to consider. The company launched its initial public offering (IPO) in April 2010 for C$1.55 billion and began trading at $15.70 per share. The company reached a high of $17.92 on March 3, 2011.

It hasn’t always been smooth sailing for Athabasca Oil, however – by late 2020 its shares dropped to an all-time low of just $0.11, but since then its share price has recovered nicely with a 2,950 per cent increase in a little more than three years to its current price of $3.80 as of Dec. 8.

Although its share price is still low compared to its all-time highs, its substantial recovery since 2020 is enticing, and indicative that Athabasca Oil is still vastly undervalued. This could be attractive for potential buyers.

The company also has recently announced its budget guidance for 2024, highlighting that it is planning for capital expenditures of $175 million while focusing on completing the 28,000 bbl/d expansion project at Leismer.

Athabasca Oil also plans to grow its production to 37,500 boe/d by the end of 2024, which is a 14 per cent increase from the end of 2023. Annual production guidance also sits at 35,000 to 36,000 boe/d.

All of this is to say that Athabasca Oil has legs to stand on – in the short and long term. With Athabasca’s oil reserves and growing production heading into 2024, this makes the company an attractive target for energy companies that are looking to expand its presence in Canada’s energy sector to scoop Athabasca under their wings.

About Athabasca Oil

With its headquarters out of Calgary, Athabasca Oil Corp., is a company focused primarily on the development of thermal and light oil assets. The company operates under its light oil and thermal oil segments.

Its thermal oil segment includes its assets, liabilities and operating results for exploring, developing and producing bitumen from sand and carbonate rock formations from Northern Alberta’s Athabasca region.

Athabasca Oil’s light oil segment includes its assets, liabilities and operating results for the exploration, development and production of light crude oil and medium crude oil, tight oil and conventional natural gas.

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