The new median price for Canadian oil and gas reserves is some C$12.80 per barrel of oil equivalent, up from an average of C$9.08 in 2003, according to an analysis by Calgary-based investment-banking and asset-brokering firm Sayer Securities Ltd. Reserves are defined in the study group as proved plus probable before royalties. "This was the highest price recorded since Sayer Securities began publishing merger and acquisition statistics in 1988," says Tom B. Pavic, an associate with the firm. M&A deals in 2004 totaled C$15.3 billion, up from C$9.3 billion in 2003, but lower than the C$46.4 billion of 2001 and C$25.4 billion of 2002. No deals in 2004 were larger than C$1 billion. 2002 included the merger of PanCanadian Energy Corp. and Alberta Energy Co. Ltd., which formed EnCana Corp., for C$15.9 billion. Driving asset values are higher commodity prices. Pavic says the average price for Edmonton par oil in 2000 was C$44.33 per barrel compared with C$52.54 in 2004, and gas at the AECO-C hub averaged $5.02 per million Btu in 2000, compared with $6.79 in 2004. Asset-hungry royalty income trusts (RITs) are also pushing asset prices higher; RITs did C$7.3 billion of deals in 2004 or nearly half of all deals that year, Pavic adds. They did C$4.5 billion or 50% in 2003. The largest deal in 2004 was PrimeWest Energy Trust's purchase of U.S.-based Calpine Corp.'s Canadian oil and gas assets for C$806 million, including Calpine's 25% interest in Calpine Natural Gas Trust. The trust was later sold to Viking Energy Royalty Trust for C$486 million. Other deals involved the mergers of traditional E&P companies, oftentimes resulting in the formation of a RIT and spin-out of smaller E&P companies. Progress Energy Ltd. did this with Cequel Energy Inc.; StarPoint Energy Ltd. with E3 Energy Inc.; and Ketch Resources Ltd. with Bear Creek Energy Ltd. Canadian RITs now number 34, and more are under way, including the combination of Argo Energy Ltd. and Lightning Energy Ltd. to form Sequoia Oil & Gas Trust and an E&P company, White Fire Energy Ltd. "Early indications in 2005 are that the RITs' dominance in the M&A market will continue as it has over the last few years," Pavic says. Already in 2005, NAL Oil & Gas Trust and Manulife Financial Corp. acquired Addison Energy Inc.'s Canadian assets for C$550 million. "With capital readily available to RITs and junior E&P companies, both groups should continue to be strong buyers in the M&A market for 2005," Pavic concludes. "Barring any unforeseen circumstances...acquisition prices for reserves should continue to remain at current levels or even be slightly higher. However, the growing number of RITs will likely result in the prices being paid for production increasing much more dramatically in 2005."