BMO’s top oil & gas analyst eyes four-way ‘Montney Mash’ mega merger
Pumpjacks draw out oil and gas on a frosty -25C day from wells head near Carstairs, Alta., Monday, Feb. 3, 2025. Canada has the third-largest oil reserves in the world and is the world’s fourth-largest oil producer. THE CANADIAN PRESS/Jeff McIntosh · The Canadian Press
Bank of Montreal’s veteran oil and gas analyst is making the case for a four-way mega merger in Western Canada’s Montney Formation, arguing such a deal would boost scale and broaden investor appeal.
One of North America’s largest oil and gas reserves, the Montney Formation straddles the British Columbia-Alberta border. It’s about the size of New Brunswick and Nova Scotia combined.
Recent M&A action in the region includes Whitecap Resources’ (WCP.TO) plan to merge with Veren (VRN.TO) in a $15 billion deal, and Ovintiv’s (OVV.TO) recently closed $3.3 billion purchase of Montney assets from Paramount Resources (POU.TO).
“M&A has been a popular investment theme in the oil and gas sector,” Randy Ollenberger, managing director at BMO Capital Markets, wrote in a research note on Friday. “In Canada, investors have long pondered the need for consolidation in the Montney.”
Companies in his hypothetical four-way “Montney Mash” deal include Advantage Energy (AAV.TO), Birchcliff Energy (BIR.TO), NuVista Energy (NVA.TO), and Kelt Exploration (KEL.TO).
“A merger between the remaining Montney intermediates could translate to potential cost savings through shared tax pools, reduced [selling, general and administrative] costs, better capital efficiencies, and a lower cost of debt,” Ollenberger wrote. “A larger entity may also be able to access higher-priced natural gas hubs.”
He says the hypothetically combined entity currently trades at a steep discount to peers, highlighting a “valuation disconnect” for companies like Birchcliff and NuVista.
Birchcliff shares soared by double-digits last week, after the company raised its 2025 guidance in anticipation of higher prices.
“Bigger producers can leverage their size/scale to secure long-term contracts with newer and more efficient service equipment. We suspect if the four entities merged, they could have similar negotiating power that could help improve capital efficiencies,” Ollenberger wrote.
“We estimate that this could save [about] $145 million of capital spending.”
However, he admits that a four-way merger would be “unusual and complicated,” adding that smaller respective deals between Advantage and Birchcliff, and NuVista and Kelt are more likely.
“While these more traditional mergers could lead to some cost savings, they likely don’t create the scale needed to gain incremental U.S./LNG price exposure and higher institutional interest.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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