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Globe & Mail (Canada): Global dealers bolstering Calgary ranks

BOYD ERMAN AND ANDREW WILLIS
Update

The hottest commodity in Calgary these days isn’t oil, but investment bankers who know the oil business.

In a trend that points to foreign interest in Canadian energy companies, the biggest global investment banks are all bulking up in the capital of the oil patch to prepare for an expected wave of cross-border deals.

Citigroup Inc., Credit Suisse Group, Lehman Brothers Inc. and Lazard Ltd. are among the firms either out headhunting, or considering whether to add bankers in Calgary. Citigroup’s investment-banking arm already has an office there, and Lehman Brothers is just opening one. For Credit Suisse and Lazard, two firms that specialize in advising on takeovers, Calgary will be a new outpost.

The global firms are likely to find this a ripe time to poach bankers from Canadian-owned firms, as the federal government’s decision to tax trusts has hurt the sector, and it was a key source of business for the Calgary offices of investment banks such as CIBC World Markets Inc. Lehman Brothers recently hired one of CIBC World Markets’ top deal makers, Tim Kitchen, for its new Calgary office and is still seeking more bodies in the oil patch. Goldman Sachs Group Inc. arrived in the city two years ago, just ahead of the stampede, by hiring two CIBC investment bankers. “It’s been pretty easy picking low-hanging fruit as a member of a Canadian investment dealer when the trusts were dominating the landscape,” said a senior executive at one of the big global banks. “Our opportunity is a different kind of game. It’s more of a global, cross-border game.”

Along with hiring local talent, the global dealers are making Calgary a frequent stop for their international deal makers. The head of one global dealer’s Canadian operations said: “The issue for foreign dealers is how to best deliver global expertise to a Calgary client. At Suncor or EnCana, they don’t want to talk to another Calgary banker, they want to talk to the banker who has worked on the world’s largest energy deals and knows the player and trends. That banker probably lives in London, or maybe Houston.”

The global securities firms want to be ready because international energy firms are all interested in Calgary’s oil companies, including players in the oil sands. Italy’s Eni SpA, which looked at oil sands operator Deer Creek Energy Ltd. before it was sold to France’s Total SA, and Norway’s Statoil ASA are among the producers snooping around Calgary for targets.

Royal Dutch Shell PLC, which is in the process of trying to buy out minority shareholders of its Canadian unit, could also be a consolidator in Canada’s oil patch. On top of that, China’s oil producers are also in the mix.

The trade won’t just be one-way, bankers say, because some of Canada’s oil producers are big enough to buy overseas rivals as well. And not every foreign-owned dealer focuses on investment bankers as a way into Calgary. UBS AG built its presence in Calgary by hiring the entire former Canadian energy trading team at Enron Corp. after that firm imploded.

CIBC World Markets is likely to be a big target for headhunters because its Calgary business was the most closely tied of any domestic bank’s to the trust sector, industry sources said. In addition to Mr. Kitchen, the firm recently lost mid-level banker Jason Montemurro to Kern Partners Ltd., a Calgary merger-advisory and private-equity boutique started by veterans of JPMorgan Chase & Co. and RBC Capital Markets.

CIBC is looking to quickly replace the departed bankers to make a statement that it isn’t backing down in the Calgary market. When the firm lost two key Calgary personnel to Goldman Sachs in mid-2005, it took just two weeks for CIBC to find replacements.

The firm will want to be ready and fully staffed, because in addition to any cross-border deals, there will also be plenty of made-in-Canada business over the next couple of years generated by the move to tax trusts, which is expected to prompt a wave of mergers between oil-and-gas-producing trusts as they seek to maintain reserves and payouts.

Private equity firms are also eyeing some of the drilling trusts whose unit prices have been battered by the combination of the trust tax and drop in energy prices, which is reducing demand for new wells. Buyout shops like the drilling business, investment bankers say, because companies in the sector come with hard assets, such as rigs, that can be used to back the loans that pay for private-equity takeovers. 

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