Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
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6 www.lexpert.ca Feature "Even though everything is very profitable right now, there's still a lot of headwinds facing the traditional oil and gas industry" "[There is] revival of interest in LNG projects on both coasts" Xiaodi Jin BORDEN LADNER GERVAIS LLP Ron Ezekiel FASKEN nity turns away from Russia, the world's second-largest natural gas producer. Russia's invasion of Ukraine is helping prices rebound and is also providing export opportunities for natural gas, says Ezekiel. "It's breathing some new life and new opportunities into the sector," he says. ere is a "revival of interest in LNG proj- ects on both coasts. Even the West Coast sees some interest because greater demand means some LNG volumes or cargoes will be diverted elsewhere." In 2018, Shell, PETRONAS, PetroChina, Mitsubishi Corporation, and KOGAS launched a joint venture to develop LNG Canada, an LNG processing and export facility in Kitimat, British Columbia. Currently 60 percent completed, the site will be able to produce 14 million tonnes of LNG annually. "at should be coming online in 2024, and that's going to be Canada's first LNG export facility," says Peter Danner, a partner in the oil and gas group in Torys LLP's Calgary office. He says that LNG Canada and the potential of other projects are driving a lot of activity in the natural gas space. On the other side of the Rockies, with the retirement of coal-fired electricity power plants, LNG will remain the back- bone of the Alberta electricity grid for a long time, says Baines. e province has increased renewable energ y generation – predominantly solar and wind. But absent significant technological develop- ments around battery storage capacity, the sporadic nature of wind and solar makes it challenging for these sources to displace natural gas, he says. "On a smaller geographic area like Alberta, it's much harder, without batteries, to really cope with the intermittent nature of renewable resources," says Baines. "You need something to backstop that, to make sure that the lights stay on even in the night- time when the wind isn't blowing." According to Danner, high commodity prices and their resulting optimism have created a lot of transactional work. "The M&A space is very busy," he says. When the pandemic hit, the collapse in oil prices slowed down deals for the balance of 2020. But beginning in 2021 and for the 18 months since, there has been a resurgence. Danner's office has not yet seen a slowdown. Several underlying trends drive the activity, he says. LNG growth is one. ere are a lot of non-core asset divestitures, as companies focus on their core assets and use the divestment as an opportunity to return funds to shareholders. Danner is also seeing a lot of private equity sales. "ere's a lot of private equity money that went into [upstream oil and gas], and when the oil prices collapsed, they were stuck with these assets that were difficult to sell. But now that the price has gone up, there's a lot of private equity seeking to exit those investments. at's driving activity." ESG portfolio rebalancing is also stim- ulating M&A, he says. Larger oil and gas companies are divesting higher-carbon assets and consolidating positions to decar- bonize their operations, putting those assets up for sale. Owners whose asset port- folios have more carbonization tolerance will then buy them. High oil prices can also pose a challenge for M&A, says Baines. Whenever prices are on the extremely high or low end, there is a potential for diverging views on valuation between vendors and acquirers. Buyers may not be willing to pay the current peak price, assuming it will not last. " When the prices are really volatile, or when they're particularly high or partic- ularly low, I think it can make it chal- lenging to get deals done, and so there may be some of that going on," he says. "That said, I think deals will continue to get done, but I'm not sure that I expect to see a raft of acquisitions in the current pricing environment." In the oil and gas sector, generally, there is a heightened focus on ESG, says Kevin Kerr, a partner in the Calgary office of Blake Cassels & Graydon LLP, who has a corpo- rate/commercial, energ y, and M&A prac- tice. ESG has the industry's executives and boards incorporating closer attention to the environmental and social aspects of the