The collapse in energy prices has slammed companies that operate in the so-called oil sands of Canada — a region of abundant energy that’s incredibly expensive to get out of the ground and refine. So, going by the playbook, it’s time to merge. Suncor (SU) is set to acquire Petro-Canada in a $15 billion based stock deal, representing a 30% premium of PC’s Friday closing price.
A recent report from FBR noted the grim maths facing the industry. For one thing, these producers need $85 oil to be drilling and selling profitably. Also, for Petro-Canada, a Canadian firm, any continued weakening in the US dollar — have you seen the Dollar lately? — would put even more cost pressure on the firm.
Overall though, as the chart below shows, capex is set to fall off a cliff, and thus it’s logical that firms would tie up and shed deadweight.