?While the rapid rise in the price of gasoline is a hot button for most North American consumers, many others have recently taken to purchasing producing oil wells as a personal hedge against further price increases, says Calgary-based Sayer Energy Advisors president Alan Tambosso.


“Many non-oil industry individuals have been pooling capital with friends and neighbors and attempting to enter the M&A marketplace simply because they want to own some oil as a hedge against the rising cost of fuel,” he says.


Tambosso says he has seen doctors, lawyers, housing contractors, field operators, service-company hands and farmers among others become regular visitors in data rooms in Canada.


“Many, but not all of them, have never managed a producing asset, but they all know why they want to. They are trying to invest their cash directly in oil wells because they don’t like paying the current price for a liter of gasoline.”


These new Canadian “oilmen” often were formerly retail investors holding the common shares of publicly traded oil companies, he says. Some of that capital is now leaving the equity markets in favor of such direct investment in assets. Other capital is coming from guaranteed investment certificates (GICs) and other investments that do not provide adequate protection against inflation.


Tambosso suggests these unconventional buyers are able to close deals for two reasons: they are unsophisticated purchasers and pay more than the assets are worth, or they are buying assets that no sophisticated buyer wants.


“Both scenarios will often ultimately have unhappy endings,” he says.


He compares the trend to that of Argentina in the early 1990s, at which time the country took its state oil company YPF public on the New York Stock Exchange as a stabilization attempt against hyperinflation and offered its mature, marginal properties for sale. Many of the purchasers were individuals attempting to protect their personal wealth from inflation by locking into a stable commodity.


After a short time these owners realized they did not know how to manage an oil property and the assets suffered from lack of attention and poor management. Many of these assets were subsequently sold to Canadian E&P companies for significant discounts to their true worth.


“The Canadian companies were able to take advantage of the purchase of assets from parties that really had no business being in the upstream oil industry,” Tambosso says.


And similar to the Argentine example, “we do see some defensive strategies against inflation here in Western Canada.”

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