Talisman takeover by Repsol may not lead to more deals in short term

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Energy companies will face increasing pressure to sell assets or seek buyers for their entire operations if low oil prices persist as expected, but it could be several months into 2015 before the deal tally picks up.

Spain's Repsol SA launched the largest Canadian oil-patch takeover of this year on Monday, bidding $8.3-billion (U.S.) for Calgary-based Talisman Energy Inc., although discussions had been going on for about six months. It may not usher in a flood of new transactions in the short term.

Would-be buyers will likely need a much better idea of where oil markets are headed before making big deals, said Fraser McKay, Houston-based analyst at global energy consultancy Wood Mackenzie. That could take three to six months.

"It's difficult to pin a number on a deal when the oil price is constantly moving beneath your feet," Mr. McKay said. "Then, there's a short period of time whilst everyone reworks the numbers and makes themselves more comfortable, both on the buyer and the seller side, that the right deal's being struck."

He predicted that the deal count will drop in Canada and the United States next year, even though energy companies saddled with high debt will be under pressure to unload assets to repair their balance sheets while oil markets remain weak.

Wood Mackenzie said some asset deals are already being shelved as acquirers "melt away."

"Buyers are wary of doing a deal that might make them rerun the numbers in a couple of months' time and find that if they'd held out they may have got the company or the assets cheaper," Mr. McKay said.

"Also, they're looking at their own financial situation, and even the most financially robust companies will be running a different set of downside 2015 prices than they might have been running in June."

Sources have said that private equity players could ratchet up energy acquisitions as bargains appear in both energy production and infrastructure and would-be industry buyers stay on the sidelines.

However, Mr. McKay pointed out that they were already active before the sharp drop in crude prices.

West Texas Intermediate crude fell again on Thursday, sinking $2.36 a barrel to settle at $54.11, or about half the price in mid-June.

In the past week, several Canadian producers announced sharply lower spending budgets for 2015, some of them having lowered expectations set just weeks earlier.

"That underlines the uncertainty in terms of near-term oil prices for these companies," he said.

On a worldwide basis, energy companies will have to slash another 37 per cent of spending from 2014 to maintain debt levels, assuming Brent crude at $60 a barrel, WoodMac said. That's in addition to $9-billion in spending cuts announced in recent weeks.