While the first half of 2005 brought record prices to the Canadian M&A space, the second half didn't exactly disappoint. As companies exiting Canada finished their exits and companies selling noncore assets finished their dispositions, the lack of opportunities to pay these historical prices proved to be the disappointment. "We continue to see a reducing supply of assets on the market, which continues to increase transaction metrics," says Art Korpach, Calgary-based vice chairman and head of global oil and gas for CIBC World Markets. "For the most part, many of the U.S. companies that are going to exit Canada have already exited and a lot of large, noncore asset-disposition programs have been completed." George Gosbee, chairman, president and chief executive of Calgary-based Tristone Capital, says these factors have led to a lack of available smaller asset packages in the marketplace, a trend he expects to continue through 2006. "In past years we saw companies doing a lot of house-cleaning, getting rid of the nonoperated, higher-cost properties and keeping the jewels and the properties in their core areas," Gosbee says. "Now, everyone's house is clean, and E&P companies are not going to shed their good stuff, so junior companies are forced to grow through the drillbit or buy internationally." As asset supply dwindled, large buyers were forced to pursue assets that would have been too small for them in past years, says Mark McMurray, a principal with Calgary-based divestment firm Kobayashi Partners Ltd. "Buyer demand versus supply was overheated," he says. "Every buyer demographic in the marketplace was anxious to make acquisitions and the opportunities just weren't there. We saw buyers increasingly moving down-market to make acquisitions." For those that did buy in the second half of 2005, record-breaking prices continued to be paid. According to Brent Heinz, vice president, Calgary-based Sayer Energy Advisors, on a proven-plus-probable reserves basis, the median acquisition price paid increased from C$15.25 per barrel of oil equivalent in the first half of 2005 to C$15.91 in the second half of 2005. Production-based acquisition prices increased similarly, from C$49,312 per flowing daily barrel of oil equivalent (BOE) in the first half to C$53,596 in the second. Continued high levels of interest for properties in the oil and gas market, coupled with record cash flows and increased liquidity in the Canadian marketplace for oil and gas stocks, pushed transaction metrics higher in the second half, says Barry Munro, a Calgary-based partner, corporate finance, with Ernst & Young's Energy Center. "If I looked at the Canadian acquisition metrics compared with every other place in the world, Canada is the most expensive place in the world to buy oil and gas assets," he says. "In return, buyers in Canada experience more political certainty and a lot less risk compared to other geographies around the world." For more on this, see the April issue of Oil and Gas Investor. For a subscription, call 713-260-6441.