RPT-Bay Street Week Ahead-Takeover talk returns to oil patch

(Repeats Friday column)

By Scott Haggett

CALGARY, Alberta, Jan 11 (Reuters) - Shares of Canadian oil producers, hard hit by crashing commodity prices and the credit crunch, have staged a quiet comeback since bottoming out in November and observers say the takeover chatter that roiled the market late last year may return as conditions improve.

Plunging oil prices, which have retreated by more than $100 a barrel since peaking above $147 last July, have forced oil producers to retrench as their cash flows dwindle and credit markets remain tight.

That's kept takeovers to a minimum because would-be buyers can't access the financing needed to pay for acquisitions and can't pay for them out of pocket as lower commodity prices chop cash flow and profits.

But there are signs the credit crunch may be easing. Several energy firms successfully placed debt over the past few weeks, raising the chances that big oil companies may find the cash to take advantage of weakened competitors and snap up attractive -- and inexpensive -- properties.

"I think we will see some (merger and acquisition) activity in the industry this year," said Lanny Pendill, an analyst with Edward Jones.

"A lot will probably be done on a smaller scale. Companies that are well positioned with cash and strong balance sheets ... and that have gaps they need to fill may turn to acquisitions."

The pessimism that hit the industry as prices plunged has abated somewhat. The Toronto Stock Exchange's energy index, which rose to a record 470 points in June, bottomed at 176.4 in late November, its lowest level since October 2004.