Oil and gas companies looking for corporate suitors not feeling the love

It's getting so bad in the oilpatch that companies in trouble can't even sell themselves.

TD Securities recently analyzed the strategic reviews of 15 Canadian energy firms over the past 18 months. Three have found buyers, the TD Securities report said.

Six are still searching for a suitor, four have slipped into receivership, one closed down after selling all of its assets and another dropped its strategic review and hired a new CEO, according to the analysis released last week.

The companiesmainly junior outfitsare the energy sector's unwanted.

Success often means sale or merger

In theory, strategic reviews are an open invitation for solutions to a company's poor share price that can include refinancing, asset sales and partnerships. But success often means a corporate sale or merger.

Calgary-based Zargon Oil & Gas announced its strategic review 13 months ago and despite recent agreements to sell its southeast Saskatchewan oilfields and a smaller package of Alberta assets, it is still trying to fix its balance sheet.

"We wanted to capture the best value we can for the shareholders, so we did eventually sell our best assets in a couple of transactions," said president and CEO Craig Hansen.

"We had some bank debt, we got rid of it, but we still have debentures to pay and so we continue on."

Gulf between buyers,sellers

There's a "gulf" between what buyers are willing to pay and what sellers are willing to accept, Hansen said, especially for assets offering marginal returns at today's low oil and gas prices.

Bruce Edgelow, vice-president of strategy for lender ATB Financial, said the string of failed strategic reviews over the past 18 months is related to several factors. They include falling commodity prices, market expectations by potential buyers and recent regulatory moves such as Alberta's decision to toughen minimum well abandonment liability coverage levels before approving licence transfers, Edgelow said.

But he thinks companies will continue with their strategic reviews anyway.

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"It's all about share price. If I'm being treated poorly in the marketplace, then the board will say, 'It's time to do something,"' said Edgelow.

"It's a good way to flag the system that you may all of a sudden be open to do some business. It may bring someone to the front that you didn't know was interested, so you might as well do a formal process."

TD also provided a list of 29 companies that launched strategic alternative processes from 2011 through 2014, a period of much higher oil and gas prices. Twenty-one of those concluded successfully in corporate sales, refinancings, partnerships or asset sales, the bank said.

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