Energy companies with a combination of healthy balance sheets, prowess in the futures market and reputations for making acquisitions pay off will head into 2015 with the wherewithal to pick up some assets at attractive prices.
Sliding oil prices have sent investors scurrying to sell energy stocks fearing a big drop in returns, but there are some Calgary-based producers poised to thrive in the weaker environment.
Energy companies with a combination of healthy balance sheets, prowess in the futures market and reputations for making acquisitions pay off will head into 2015 with the wherewithal to pick up some assets at attractive prices. Whitecap Resources Inc., Spartan Energy Corp. and Pine Cliff Energy Ltd. are in such positions in the small- to medium-size oil and gas group, said analyst Cody Kwong at FirstEnergy Capital Corp.
"They're not going to include that in their 2015 budgets, but the guys with the cost-of-capital advantage would certainly like to strike in the market lows," Mr. Kwong said.
Of course, buying low, when it can be done, allows a quicker payout, especially if the market rebounds in the months following a deal, he said.
The three companies have been active acquirers, even when conditions have been weak. In addition, they are among a group of companies that have little trouble raising money in capital markets for deals in good times and bad.
However, acquisition targets with high debt levels become much less attractive when commodity prices weaken, as buyers, especially those that pay dividends, will be careful not to weaken their own balance sheets..
The slide in oil prices has slowed the number of acquisitions and financings in the oil patch after a gusher for much of the year, but it has not stopped the activity.
Last week, Painted Pony Petroleum Ltd. raised $55-million in an equity financing, led by Cormark Securities Inc. That's in the face of a 29 per cent drop in West Texas Intermediate oil and 22 per cent fall in the S&P/TSX Energy Index since June.
It's making some companies a bit wary of hammering down 2015 capital spending budgets too tightly, said Mr. Kwong, whose firm played host to an investor conference in Toronto this week, concentrating on mid-size and small producers. Many of the presenters said they plan to gauge oil and gas prices markets around the end of the winter drilling season to determine whether to adjust spending levels, he said.
For its part, Whitecap has set a 2015 development budget of $360-million, up 16 per cent from the estimated outlay for this year.
Jeffrey Jones