A survey conducted for Blake, Cassels & Graydon LLP (Blakes) by mergermarket, found that 60% of respondents expect the total volume of oil and gas M&A activity to increase over the next 12 months.

Canadian corporate executives and U.S. financial advisors felt the most strongly, with 70% and 69% respectively expecting more action.

A majority of respondents believe that the total value of deals concluded will also increase, with 78% of Canadian corporate respondents sharing this view.

“The main drivers for M&A action are expected to come almost equally from three main factors: recent changes to the Alberta Crown royalty regime; competitive pressure to grow; and the need to improve efficiencies through economies of scale,” says Craig Spurn, Blakes partner and head of the oil and gas practice. “Market uncertainty and volatility are clearly reflected in the responses as respondents struggle to understand the economic environment.”

Respondents do not think the royalty changes will have a positive impact on any players in the sector, with high volume conventional oil producers the most negatively affected. Spurn notes that, “The royalty regime is having an impact in the sector as players come to terms with the economics of the situation.”

There was a clear consensus among 81% of respondents that mid-market transactions will see the most M&A activity, although there were marked differences regarding where in the mid-market range they would occur. Ninety-one per cent of Canadian executives surveyed believe the transactions will be in the $15 million to $100 million range, while 38% of U.S. financial advisorrs envision larger transactions in the $250 million to $500 million range as most prevalent.

Junior Canadian exploration and production companies are expected to be the most active both as targets and as acquirers in the next year. Fifty-six per cent of respondents said junior companies would be the most active targets in the oil patch, while 36% believe they will also be the most active buyers, followed by 31% who indicated that Canadian senior exploration and production companies would be the most active followed by 28% who cited overseas firms as being the most active.

“While overall M&A activity is expected to increase next year, there was no clear consensus among U.S. and Canadian financial advisors on whether foreign acquisitions will increase in the next year,” says Blakes partner Michael Laffin. “However, economic uncertainties in the U.S. do not seem to be dampening interest in Canadian oil and gas interests with 81% expecting U.S. companies to be the most active buyers.”

The report Canadian Oil and Gas Spotlight interviewed over 100 Canadian and U.S. oil and gas executives and financial advisors in April 2008. The report is available at www.blakes.com.