From  The Canadian Press/Canadian Manufacturing

Volatility in oil and gas prices over the past year have scared many buyers out of the market while making valuations difficult for buyers and sellers to agree upon, observers say.

Benchmark West Texas Intermediate oil rose above US$50 per barrel recently, the highest in six months, but spot natural gas prices in Alberta are at about $1.50 per thousand cubic feet, down nearly $1 from a year ago.

Players in the energy mergers-and-acquisition market have been closely watching Calgary-based Husky Energy’s efforts this year to sell non-core oil and gas assets in Alberta and Saskatchewan, analyst Michael Dunn of FirstEnergy Capital said June 3. The company wants to bolster its balance sheet for what it fears will be a long period of low oil and gas prices.

“The read-through for the Husky asset sales so far is that there are bidders for oil assets, because … what they’ve announced so far is mostly weighted towards oil,” he said. “There’s still a market.”

At its Investor Day in Toronto last week, Husky said it expects to raise $2.9 billion from closed or pending asset sales, including $1.7 billion from pipeline and storage assets in its core heavy oil region on the Alberta-Saskatchewan border, and about $1 billion from the sale of mainly oil-weighted wells producing 22,000 barrels of oil equivalent per day.

It had less to say about the Alberta gas properties it’s trying to sell—only that discussions are ongoing for assets producing about 18,000 boe/d.

Dunn said the gas wells in the portfolio are likely losing money on a cash flow basis due to low prices. He added the age of the portfolio suggests it is likely burdened with heavy reclamation liabilities as depleting gas wells are retired.

“The M and A market was quite focused on what would happen from the Husky process so we may see other deals not related to Husky happen,” he said. “Some people were waiting for that to be cleaned up before moving on to whatever the next opportunities are.”

Tom Pavic, vice-president of Calgary-based Sayer Energy Advisors, says Canadian energy deals so far in 2016 add up to about $15 billion, roughly equal to the total for all of 2015, but far below the $49 billion in 2014.

Most of this year’s spending resulted from the Suncor Energy takeover of Canadian Oil Sands for $6.6-billion in shares and assumed debt.

In a note to investors last week, oil and gas analyst Justin Bouchard of Desjardins Capital Markets said he thinks the M and A market will start to loosen up as bank revisions to lending limits put pressure on debt-burdened energy companies to sell, and new stock issues provide potential buyers with funds to shop for bargains.

Bouchard said “the very early stages of a potential pickup in M and A activity” could be underway, citing two recent deals involving Saskatchewan oil assets _ Whitecap Resources’ (TSX:WCP) $595-million purchase of a Husky package and Spartan Energy’s takeover of private Wyatt Oil and Gas for $77 million in shares and assumed debt.

Whitecap paid for its purchase in part by selling shares worth about $470 million.

“We expect these trends to persist into the summer as banks look to reduce exposure to the sector, with not even the higher-quality facilities completely immune to a potential reduction,” Bouchard wrote.

He pointed out that Penn West Petroleum is under increasing pressure to market its core Viking and Cardium oil assets to avoid debt agreement violations as early as this month. Bouchard said mid-sized companies selling shares recently to pay down debt and increase flexibility include Enerplus, raising $230 million, and Bonavista Energy, taking in $100 million.

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