Of the C$8.8 billion of M&A deals involving Canadian assets and companies in first-half 2004, some C$3.1 billion worth was the result of divestments by U.S.-based companies, reports Calgary-based Sayer Securities Ltd. And the divestments continue. Deals since June 30 include Vintage Petroleum's exit from western Canada (the buyer was Midnight Oil), El Paso Corp.'s exit from eastern Canada (the buyer was Canadian Superior), the Calpine Corp. exit (the buyer was PrimeWest Energy Trust) and divestments by Anadarko Petroleum (the buyers were Advantage Oil & Gas and Canadian Natural Resources). More U.S. selling is under way-a second divestment by Anadarko and offerings by Hunt Oil, Dominion and Exco Resources/Addison. For some U.S. companies, market prices for Canadian assets cannot be ignored: the average price paid per proved barrel of oil equivalent (BOE) in first-half 2004 was C$13.27. In the first half of 2000, when U.S. companies were net buyers, the average was C$5.11, the firm reports. "With commodity prices remaining high and acquisition prices continuing to climb, we may see more America-based companies following the trend by reviewing their Canadian portfolio with the intention of selling," says Tom Pavic, an associate with Sayer Securities. The C$8.8 billion in total Canadian activity in first-half 2004 is up from C$5.0 billion in the first half of 2003, the firm reports. The activity remains slower than that of 2000 and 2001, however. "In the higher activity periods, American companies were generally buyers...," says Pavic. There has been some U.S. buying in Canada this year, totaling C$400 million, or 4% of activity, or about the same as during first-half 2003, Pavic adds. U.S. companies that have been buyers include Forest Oil, which obtained a good bit of Canadian assets when buying U.S.-based The Wiser Oil Co. The deal increased Forest's Canadian proved reserves 35% and production 67%. Also, Quicksilver Resources Inc. bought coalbed-methane (CBM) assets from Ice Energy Ltd. for C$6.8 million, Pavic notes. "The latter transaction highlights an emerging trend occurring in the Canadian M&A market-the acquisition of CBM assets in Canada for significant dollar values," he says. CBM assets were also involved in APF Energy Trust's purchase of Great Northern Exploration Ltd. "This trend will continue in the future as more companies become familiar with CBM, and the value of the assets becomes more established through drilling and production." As for U.S. companies' divestments during the first half, Murphy Oil sold its Canadian producing assets for C$830 million to Pengrowth Energy Trust and Canadian Natural Resources Ltd. Meanwhile, Enerplus Resources Fund, Acclaim Energy Trust and Paramount Resources Ltd. teamed to buy ChevronTexaco assets for C$1.1 billion. "The buyers have been predominantly royalty income trusts (RITs) and large domestic E&P companies," Pavic says. One first-half buyer of a U.S.-based company's Canadian assets is abroad: BG Group, which bought El Paso's western Canadian assets for C$456 million. "The purchase of these El Paso assets marks British Gas' return to Canada after a 10-year hiatus."

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