Key issues in Canadian energy M&A for US buyers

 Chip Johnston, Bradley Squibb and Julie D’Avignon

Although Canada is undergoing its most severe oil and gas downturn since 1998, it remains an important jurisdiction for oil and gas investment and will continue to import substantial amounts of capital and technical expertise from the United States in order to develop its considerable hydrocarbon potential.

The following presentation from Stikeman Elliott and Hilary Foulkes and Paul Perea of Tudor, Pickering, Holt & Co. outlines key topics related to M&A the Canadian oil and gas sector by US buyers, including the following. 

  • Review of the structure of the Canadian energy market
  • Overview of the Canadian public M&A process, including timing and terms
  • Key terms of Canadian confidentiality agreements
  • Important Canadian tax considerations for US investors

Please click here to download the presentation. 

PIPE Investments in Canadian Listed Oil & Gas Companies

A substantial private placement or “private investment in public equity” (a PIPE) involves the direct or indirect acquisition of a control position in a public company by an investor through the purchase of shares of the target and (in most cases) warrants or debentures that are convertible into shares of the target.

A PIPE allows an investor to acquire a substantial equity position at a discount and  an option on the equity to reward future performance while affording the investor the ability to influence and re‑invigorate corporate strategy.

For management a PIPE affords capital to exploit growth opportunities in a down market and creates a lead investor that can support later capital market fund raising. For shareholders, a PIPE is an alternative to M&A (or worse outcomes) and offers the opportunity to realize substantial value later in the cycle as commodity prices recover.

Our PIPE toolkit is a summary of the key commercial, regulatory and tax considerations for investors and targets contemplating a PIPE. We have also reviewed some of the terms of representative PIPE transactions

CLE VI - Key Topics in Canadian Corporate Energy Law

 On Tuesday, February 2, the firm’s Calgary office hosted its Continuing Legal Education Roundup (CLE VI) and a provided a review of key topics in the following areas.

  • Recent Corporate Tax Changes in the Energy Sector
  • Equity Lines of Credit for Oil & Gas Startups 
  • Confidentiality Agreements in Oil & Gas M&A
  • Unsolicited Offers for Canadian Targets
  • PIPE Investments in Canadian Listed Oil & Gas Companies
 
This overview is designed to provide industry participants with a quick overview of the four or five critical considerations in each of these practice areas.
 
Please click here to download the presentation.

Alberta's modernized royalty framework

Chrysten Perry, Fred Erickson and Andrew Wong -

On January 29, 2016 Alberta’s NDP Government announced a summary of a Modernized Royalty Framework (MRF) that it intends to implement.

During last spring’s election campaign, the NDP had promised to review the Province’s royalty system. The objective of this review was to design a royalty system that Albertans could trust. The promise was made in response to the concerns of some Albertans that the royalty systems designed by the previous Government (the energy industry-friendly Progressive Conservative Party) were not giving the Province its fair share of the value of its oil and gas resources.

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Pipe Dreams Deferred: A look back on how major Canadian pipeline projects fared in 2015 and outlook for the future

Allison Sears - 

2015 was not been a banner year for major inter-provincial or international pipeline projects in Canada. Apart from Enbridge finally being granted leave to open its Line 9 Reversal Project, 2015 brought little progress to report on the market access front as most of the major projects were mired in various procedural delays. Despite plummeting oil and gas prices, no proponents cancelled their major oil pipeline projects, and access to tidewater remains crucial to the viability of Canada’s energy sector. In fact, with President Obama’s symbolic rejection of Keystone XL (an indiscreet indictment of the carbon footprint of Canada’s oil sands) and the ever-increasing reliance by the US on its domestic oil and gas, the issue of access to markets beyond the US is top of mind for oil and gas producers. Shell Canada, for example, cited lack of pipeline capacity as one of the reasons for its cancellation of the 80,000 bpd Carmon Creek oil sands project, which was in mid-construction and for which Shell took a $2-billion impairment charge.

Significantly, 2015 marks the end of the Harper era, which made market access a priority, but failed to deliver in a meaningful way. Arguably, Harper’s streamlining of the environmental assessment process through amendments to the Canadian Environmental Assessment Act and the National Energy Board Act, among others, only fuelled anti-pipeline fervour and increased provincial intervention. The election of the Liberal majority government will have implications for the development and permitting of federally-regulated pipelines. Prime Minister Trudeau’s mandate letters to his Ministers of Environment and Climate Change, Natural Resources, and Fisheries, Oceans and the Canadian Coast Guard reveal that (i) a review of Canada’s environmental assessment process to regain public trust is to be undertaken immediately; (ii) the National Energy Board (NEB) is to be modernized to ensure its composition reflects regional views and has sufficient expertise in fields such as environmental science, community development, and Indigenous traditional knowledge; and (iii) a moratorium on crude oil tanker traffic on British Columbia’s North Coast is to be formalized.

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2016 Oil and gas M&A trends in Canada

Christopher Nixon - 

Despite widespread anticipation that 2015 would see an increase in oil and gas M&A and related financing activity, there turned out to be significantly less activity in 2015 than there was in 2014, as crude oil prices remained below US$50/bbl and more recently fell below US$40/bbl.

With few exceptions, oil and gas M&A activity was limited to smaller and fewer transactions in 2015. Hostile acquisitions of size were limited to Suncor’s $4.1 billion hostile offer for Canadian Oil Sands. Consensual acquisitions of size were rare (with exceptions such as Crescent Point’s $1.5 billion acquisition of Legacy Oil + Gas and Whitecap Resources’ $500 million acquisition of Beaumont Energy) as agreements on the relative valuations and on who the surviving management would be remained difficult to achieve.

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Key Developments in Canadian Public Markets Law for the oil and gas industry - Q3 2015

Chip Johnston, Andrew Beamer, Jennifer McPherson, Derek Schiissler - 

The following is an overview of key developments in Canadian public markets law applicable to the oil and gas industry from July 1, 2015 to September 30, 2015.

Public Capital Markets

  • The prospectus-exempt rights offering regime was revised (effective in December) to increase the permitted dilution limit from 25% to 100% and allow the use of a simplified rights offering circular that doesn’t require regulatory review, amongst other changes. 
  • The TSX expanded exemptions for inter-listed companies from certain of its transaction and corporate governance rules, provided that less than 25% of the issuer’s trading volume has occurred on a Canadian market in the last 12 months and that certain other conditions are met. 
  • IIROC reduced the research report quiet period after an IPO from 40 to10 days and from 10 to 3 days after a secondary offering.
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Canadian Carbon Politics Part Three: Canada after Paris

Jason Kroft, Allison Sears and Jonathan Drance[1]

The conclusion of the Paris conference, which has resulted in what has been described as the world’s first comprehensive climate agreement ( referred to often as the Paris Agreement) arguably marks the beginning of a global concerted action against climate change. International delegates from around 195 countries officially signed off on an agreement with an aim to keep the worldwide temperature increase well under the 2 degree Celsius threshold, surmised by some as a key limit necessary to avert disaster. The Paris Agreement also contains language which encourages member states to “pursue efforts” to limit the temperature increase to below 1.5 degrees Celsius, which has received support from scientists as the goal necessary to reduce many of the risks associated with climate change.

While the Paris Agreement contains no specific emission commitments, automatic sanctions or regulatory mechanisms to enforce compliance, it does require state parties to develop, file and adhere to their own emission schemes, which are defined in the Agreement as “Nationally Determined Contributions” or NDCs. Critics warn that the ambitious goals contained in the Agreement do not properly correlate with the individual NDCs made by each of the participating states, which, if left unaltered, would result in a global temperature increase well above the two degree limit. 

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Four Key Ways for Oil & Gas Directors to Manage Legal Compliance Risks

Geoff Holub & Chip Johnston

In a low commodity price environment, it may become tempting for management and the board to reduce their focus on legal compliance in an effort to conserve resources.  In some cases, growth energy companies have not established an internal compliance program under the supervision of the board.

Our view is that this is not a viable strategy for directors.  Directors face significant potential liability under Canadian law for their failure - and perhaps more significantly for the failure of the companies that they supervise - to comply with legal obligations.

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Canadian Oil and Gas Acquisition and Finance Transactions - Third Quarter 2015

Chip Johnston, Andrew Beamer, Erin Dand - 

Whether it was the summer – or the swoon of equity markets in August – this quarter marked a challenging time for deal making. Only one public deal (and two private deals) worth more than $100 million were announced in the period. The buyers that managed to transact were all blessed with a low cost of capital, while the sellers were mostly looking to solve cost of capital problems.

Warburg, CPPIB and KERN all participated in deals, along with a number of international sponsors that committed funding to small cap publics with depressed stock prices. It is also not clear that the full flush of credit pressure has been felt yet, as only one major debt restructuring occurred this quarter, but there was plenty of covenant relief going on.

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