Following news that Crescent Point Energy Corp. will acquire Hammerhead Energy Inc., a portfolio manager predicts a coming wave of consolidation in the Canadian energy space that will benefit the industry. 

Ryan Bushell, the president and portfolio manager at Newhaven Asset Management, told BNN Bloomberg that greater consolidation in Canada’s energy industry will lead to higher production growth.

"It's a good thing overall I think for the Canadian energy space, because it leads to fewer players (and) maybe more discipline on production growth,” Bushell said in a Tuesday television interview.

Calgary-based Crescent Point Energy announced its plans on Monday to acquire Hammerhead Energy for $2.55 billion, which includes around $455 million of net debt owned by Hammerhead. The deal is expected to close in December and will result in Crescent Point becoming the largest landowner in Alberta’s Montney area. 

Bushell said he believes commodity prices are “pretty stable,” and he sees West Texas Intermediate (WTI) prices remaining roughly between US$70 and $90, give or take $5.

“That obviously permeates through all the different commodity prices, natural gas, natural gas liquids, propane, butane, ethane, all of those liquid streams,” he said. 

“Which … leads to people now looking at their books and going ‘we need inventory, we need long-term production, we have to start consolidating the sector.’”

CONSOLIDATION CYCLES

Bushell noted that consolidation generally occurs in the commodities industry “when times are good,” though he said he prefers acquisitions that are counter-cyclical. 

“This happens in all commodity spaces (including) mining, gold, fertilizer and things like that, where companies are able to acquire when prices are high. That doesn't always lead to the best outcomes two to five years out,” he said. 

PRODUCTION GAINS THROUGH ACQUISITIONS

Hussein Allidina, the managing director and head of commodities at TD Asset Management, told BNN Bloomberg on Tuesday that recent deals in the energy industry show how companies can expand faster through acquisitions.

Crescent Point’s announced acquisition follows news last month that Exxon Mobil Corp. had agreed to buy Pioneer Natural Resources Co. for nearly US$60 billion, intending to expand its shale operations.

“It tells me that it's arguably easier for these guys to go and buy production versus going to look for and explore and produce,” Allidina said. 

“I think it's very important to kind of zoom out a little bit and appreciate that (capital expenditure) in the oil space, broadly speaking in the last 10 years, has been quite low. Now we need to grow our production because inventories are tight and demand is still quite robust.”