Globe & Mail Extract Depressed Canadian oil prices are forcing energy companies to use their shares as a currency to fund acquisitions, but investors have been hard to win over to the strategy.
Unusually large price discounts for Canadian crude, due to clogged pipelines, and faltering global prices have made growth hard to realize. Some producers have reduced output and lower cash flow has left consolidation using stock as the main option.
Shares of Encana Corp, Baytex Energy Corp and International Petroleum Corp, for examples, each plummeted by double-digits on the days they announced deals to buy rivals with shares. The TSX energy index performed better on those days, although it has been in steep decline since early October.
"We've been getting shocked with bad news all year, and investors don't necessarily believe that consolidation is a big enough catalyst to offset all the macro headwinds," said Kevin Brent, vice-president of investment for BlueSky Equities, which owns shares in Seven Generations Energy and Crescent Point Energy Corp.