BMO's top oil & gas analyst eyes four-way 'Montney Mash' mega merger

Bank of Montreal’s seasoned lipid and state expert is making the lawsuit for a four-way mega merger successful Western Canada’s Montney Formation, arguing specified a woody would boost standard and broaden capitalist appeal.

One of North America’s largest lipid and state reserves, the Montney Formation straddles the British Columbia-Alberta border. It’s astir the size of New Brunswick and Nova Scotia combined.

Recent M&A enactment successful the portion includes Whitecap Resources' (WCP.TO) program to merge with Veren (VRN.TO) successful a $15 cardinal deal, and Ovintiv’s (OVV.TO) precocious closed $3.3 cardinal acquisition of Montney assets from Paramount Resources (POU.TO).

“M&A has been a fashionable concern taxable successful the lipid and state sector,” Randy Ollenberger, managing manager astatine BMO Capital Markets, wrote successful a probe enactment connected Friday. “In Canada, investors person agelong pondered the request for consolidation successful the Montney.”

Companies successful his hypothetical four-way “Montney Mash” woody see Advantage Energy (AAV.TO), Birchcliff Energy (BIR.TO), NuVista Energy (NVA.TO), and Kelt Exploration (KEL.TO).

“A merger betwixt the remaining Montney intermediates could construe to imaginable outgo savings done shared taxation pools, reduced [selling, wide and administrative] costs, amended superior efficiencies, and a little outgo of debt,” Ollenberger wrote. “A larger entity whitethorn besides beryllium capable to entree higher-priced earthy state hubs.”

He says the hypothetically combined entity presently trades astatine a steep discount to peers, highlighting a “valuation disconnect” for companies similar Birchcliff and NuVista.

Birchcliff shares soared by double-digits past week, aft the institution raised its 2025 guidance successful anticipation of higher prices.

“Bigger producers tin leverage their size/scale to unafraid semipermanent contracts with newer and much businesslike work equipment. We fishy if the 4 entities merged, they could person akin negotiating powerfulness that could assistance amended superior efficiencies,” Ollenberger wrote.

“We estimation that this could prevention [about] $145 cardinal of superior spending.”

However, helium admits that a four-way merger would beryllium “unusual and complicated,” adding that smaller respective deals betwixt Advantage and Birchcliff, and NuVista and Kelt are much likely.

“While these much accepted mergers could pb to immoderate outgo savings, they apt don't make the standard needed to summation incremental U.S./LNG terms vulnerability and higher organization interest.”

Jeff Lagerquist is simply a elder newsman astatine Yahoo Finance Canada. Follow him connected Twitter @jefflagerquist.

Download the Yahoo Finance app, disposable for Apple and Android.