Considering how low oil prices have been and for how long, it’s surprising that there hasn’t yet been a wave of mergers and acquisitions (M&As) in the oilpatch. Suncor Energy Inc.’s unsolicited $6.6- billion bid for Canadian Oil Sands Ltd. aside for the moment, there have been only a few small bids.

That situation is not for a lack of interested investors; there’s lots of capital waiting on the sidelines. But there are two things standing in the way of that money getting into the game.

The first is common to every bust: nobody wants to be the first to jump in and buy for fear that valuations will go still lower.

The second is unique to Alberta’s current situation: a New Democratic Party (NDP) government has ushered in an orange wave of change. The NDP has announced that the province’s existing carbon levy on large emitters will go from $15 per tonne to $20 per tonne in 2016 and then to $30 per tonne in 2017. That levy hits coal-fired power plants and a few other heavy industries, but it will affect the oil and gas sector the hardest.

The province also has launched two significant policy reviews: one regarding the province’s approach to tackling climate change; the other regarding the oilpatch’s royalty regime. The climate change review is to be completed in November – in time for Premier Rachel Notley’s planned trip to Paris for the U.N. Climate Change Conference – and the royalty review is to wrap up by the end of the year. But what policy changes will come out of those reviews remains unknown, and that uncertainty is contributing to the slow M&A season.

On the other hand, change is in the air. The price of oil is creeping back up. There also has been a significant rebalancing of costs. The past year has been a hard one for a lot of companies in Alberta – and for their employees. But the economic climate also forced producers and their suppliers to re-examine their business models.

The labour market has been out of whack in Alberta. In the 10 years from 2005 to 2015, average weekly earnings in Canada rose by 30%. The average increase in Alberta was 46%, and that was very clearly driven by the oil and gas sector, which saw an average increase of a whopping 66%. The idea that a sustainable business model involved flying your workforce in from the East Coast, paying those rising salaries and having modules for your plants built in South Korea was always counterintuitive. The recent slowdown has allowed companies to high-grade their personnel, allowed them to freeze and even shrink salaries, and reduced the prices companies receive from suppliers.

The economic slowdown also has put stress on overleveraged companies, which brings us back to Suncor’s bid for Canadian Oil Sands. The latter was vulnerable to a takeover attempt because of its high debt load. There are many companies like Canadian Oil Sands in the energy sector and, as soon as the waiting capital feels a bit more confident about the turn of events, expect M&As to return with a vengeance – policy reviews be damned.

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