Exxon’s Celtic bid highlights a tale of two premiums
Asian acquirers pay more for Canadian assets
The buying spree under way for natural gas, crude oil and bitumen assets in Western Canada is shaping up to be a tale of two premiums.
State-run companies including Cnooc Ltd., Sinopec and the Korea National Oil Corp. have consistently paid higher acquisition premiums for Canadian companies than either their American or European competitors in deals going back to 2005, according a recent tally compiled by CIBC World Markets.
The Asian companies paid an average one-day premium of 77 per cent for Canadian acquisitions. That compares with a one-day premium of 42 per cent paid by European and American companies and 12 per cent paid by domestic buyers, the bank said in a Sept. 26 report.
Exxon Mobil Corp.’s $3.1-billion bid for Celtic Exploration Ltd. fits the pattern, says CIBC analyst Jeremy Kaliel. Exxon offered $24.50 per share for Celtic, or a 35 per cent premium to Celtic’s recent trading values.
“I’d say this isn’t out of line at all” with recent trends, Kaliel said in a telephone interview, referring to the Exxon offer.
Malaysia’s Petronas, by comparison, initially agreed to pay $20.45 per share for Calgary intermediate Progress Energy Resources Corp., a 77 per cent premium to Progress’ closing share price on June 27. That offer was subsequently raised to $22 to fend off a rival bid from a “third party” rumored to have been Exxon. China’s Cnooc Ltd. has also offered a rich, 61 per cent premium to acquire Nexen Inc.
There are several factors at play. Top of mind, CIBC says in the report, is security of supply. Asian utilities and state-run oil companies covet Canadian energy products, the thinking goes, and are willing to pay top dollar to capture resources.
Exxon’s play for Celtic is at least partly viewed in that light – a grab for resources needed to support future exports from Canada’s West Coast.
“They’ll have to strike a pricing agreement for their LNG and it’s very difficult to do that without being able to point to a captured resource,” Kaliel notes.
Exxon’s move also “highlights that large land bases that are liquids prone will be valued at significant premiums,” according to Adam Twa at Peters & Co.
“Many Canadian natural gas plays have break-evens less than $3 per Mcf due to strong condensate pricing resulting from the supply/demand dynamics in Canada, which we believe will persist,” the analyst said in an Oct. 17 note.
For Cnooc and its nationalized peers, however, a fat premium might double as a political tool. It could, for example, go some way towards mollifying critics worried about an arm of the Chinese government gobbling up a struggling Canadian company.