Following the Federal Government's December 7, 2012 pronouncement on foreign investment policy as it pertains to SOEs in the oil and gas industry (discussed in detail in our article "Competition and Foreign Investment Regulation"), 2013 should see refocused investment in Canadian resource plays. In relation to SOEs, we would expect to see few, if any, investments take the form of complete acquisitions of control (and none in relation to the oil sands), but on-going investments in the form of joint ventures, minority positions and similar arrangements. Such arrangements have become quite common in any event, with recent examples including China Investment Corporation's acquisition of a minority stake in Teck Resources and a 45% stake in oil sands assets of Penn West, and CNOOC's acquisition of a 14% stake in MEG Energy. Indeed, within less than one week of the issuance of the revised policy on foreign investment by SOEs, Encana and PetroChina announced the formation of a $2.2 billion joint venture (51%/49%) in respect of Encana's natural gas assets in the Duvernay region of Alberta. It would appear that this arrangement will not be subject to the Investment Canada Act on the basis that control will remain with Encana. We expect to see similar arrangements in 2013 and beyond. In relation to foreign investments in the oil and gas industry by non- SOEs, we would not expect that the new government policy will significantly impact such investments. In this regard, ExxonMobil announced its $2.6 billion acquisition of Celtic Exploration at the height of the controversies surrounding Nexen and Progress.
Given the substantial amounts of uncommitted private equity capital in existing resource-based funds, we also expect to see their participation in the sector, particularly in opportunistic transactions on quicker timelines than public acquirors are typically able to achieve. Depressed natural gas prices and a dearth of working capital, particularly among junior resource issuers, are also expected to continue to provide conditions for M&A, as seen in the 2012 take-private acquisitions of Compton Petroleum Corp. and Skope Energy Inc. Last but not least, we expect to see an increased number of yield plays in 2013, or acquisitions of assets by purchasers able to balance cash flow and exploration costs. Strategic consolidations of natural gas and natural gas liquids reserves will continue by companies with patience for higher commodity prices or more clarity on the potential development of West Coast LNG terminals. This may also lead to strategic divestments of non-core assets by major players consolidating their resource positions.
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