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More Consolidation In BC Nat Gas Industry?

The merger and acquisition scene among BC’s natural gas players has been relatively quiet since Malaysia’s Petronas swallowed up Progress Energy in mid 2012. But several factors may lead to consolidation activity in 2014.  First, substantial political risk has been alleviated with the re-election of the B.C. Liberals.  They have made their intentions clear to capitalize on natural gas tax revenue.  A very supportive federal government is also encouraging.  Moreover, public sentiment appears to becoming more positive. The surprising election of a pro natural gas government, shows that the majority of BCers want the work the industry offers, as well as the significant boost to public coffers. The industry now also appears to be standing its ground in the PR battle, whereas before the anti-growth movement, with its Hollywood money, was the only voice being heard.

 

Another very encouraging sign is the recent news that China’s Sinopec is in talks to invest in the Kitimat LNG project.  This would be a big commitment, and for it to be profitable they would want a significant, reliable supply of gas.  Preferably from their own properties.

Finally, many of the mid tier producers are trading at relatively low Price/Cash flow levels.  If a major wanted to increase reserves, now is as good a time as any.  There are quite a few attractively priced Montney producers that would appear to be a good fit for a larger player.  A couple that come to mind are Crew Energy Inc. (CR:T) and Nuvista Energy Limited (NVA:T).  Both are cheaply priced and expanding production.

Any m&a activity would be a boon for the industry.  As an aside we should squash any negative talk that arises if the buying is done by foreign players again. We need to keep in mind this is a global economy now.  Foreign direct investment in Canada should be promoted and not discouraged.  We simply don’t have the billions in capital necessary to bring our natural gas industry to its full potential.  Even if we did, it is a good idea to share the risk with capable foreign partners.