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Canadian merger & acquisitions heat up Crescent Point Energy follows PetroBakken deal, chases takeovers to remain powerhouse in Saskatchewan extension of Williston basin Gary Park For Petroleum News
The dam holding back mergers and acquisitions in Canada has finally burst, led by Crescent Point Energy, which is determined not to give up its premier role in the rapidly emerging oil plays of southern Saskatchewan.
Briefly challenged for top spot in the Bakken and Lower Shaunavon plays by the creation of PetroBakken — a pure-play spinoff from the C$2.24 billion merger earlier in August of Petrobank Energy and Resources and TriStar Oil & Gas — Crescent Point countered with three separate deals valued at C$923 million.
The deals included a C$665.3 million takeover of privately held Wave Energy, which has become the dominant player in the Lower Shaunavon, which Crescent Point Chief Executive Officer Scott Saxberg said is at the same stage of development as Saskatchewan’s portion of the Bakken formation was three years ago.
In other transactions, Crescent Point spent C$258 million to buy two packages of southern Saskatchewan assets from Provident Energy Trust and added to the takeover spree by purchasing Wild River Resources and Gibraltar Exploration, two other private companies operating in the region.
In total, Crescent Point rounded up production of 4,750 boe per day in southern Saskatchewan and proved plus probable reserves of 11.1 million boe at a flowing boe of C$61,710.
It estimates the deal making (based on average commodity prices of US$70 per barrel of West Texas Intermediate crude and C$5 per thousand cubic feet of AECO gas) will generate a 2010 cash flow multiple of 6.3 times, and C$89,451 per producing boe based on 6,750 boe per day.
If all are completed on schedule, Crescent Point will exit 2009 with production of 51,500 barrels of oil equivalent per day, including 18,500 boe per day from the Bakken formation and 4,400 boe per day from the Lower Shaunavon.
Push anticipated The push to build the next generation of midsized Canadian energy companies (those with production in the range of 10,000-100,000 boe per day) has been anticipated over the past year as the pressures have increased on financially strapped juniors to embark on consolidation.
Victor Rodberg, an analyst with Dundee Securities, is among those predicting a round of M&As by juniors that have neither the cash flows nor access to financial markets to keep their heads above water.
Alan Tambosso, president of Sayer Energy Advisors, forecast oil-weighted companies will become very attractive targets for prospective buyers and will command a “pretty good price.”
Kim Page, an analyst at Wellington West Capital Markets, said weak capital markets will drive a spate of mergers, led by companies that can use their stock as currency.
He said there could also be “opportunistic” deals involving gas-weighted companies among buyers who are convinced gas prices will eventually rebound.
Once the transactions are wrapped up, Crescent Point’s Bakken and Lower Shaunavon interests will also contain 502,400 net acres, 3,840 drilling locations and proved plus probable reserves of 355 million barrels.
The full shopping basket from Wave includes 444,800 net undeveloped acres, of which more than 320,000 acres is in Montana, current output of 3,000 boe per day, 87 percent of which is Lower Shaunavon medium-gravity crude, operating costs of C$13.50 per boe and tax pools estimated at C$176 million.
Overall, Crescent Point expects its portfolio will hold 4,400 net drilling locations, representing about C$7 billion of future development projects.
One of hottest oil plays The acquisitions further reinforce the transformation of what was once a sprawling grain-growing and cattle-ranching region of North America into one of the continent’s hottest oil plays in years as the industry hones technologies that are propelling the Barnett, Haynesville, Marcellus, Montney and Horn River shale plays.
The Bakken formation of the Williston basin, which underlies much of North Dakota and eastern Montana, spills over the border into southern Saskatchewan and Manitoba.
It has turned into the largest conventional oil discovery in Canada in more than half a century, reviving exploration in the Western Canada Sedimentary basin in a region previously written off as too mature for any more big discoveries.
Now the Three Forks-Sanish oil and natural gas formations within the emerging Bakken Shale are generating added interest in a region located about 10,000 feet below parts of the Williston basin.
Word has surfaced in the last month that Three Forks could be a separate and potentially prolific light crude reservoir based on the latest production results from 110 wells in North Dakota.
Results to date indicate that two zones may indeed be distinct, which Ron Ness, president of the North Dakota Petroleum Council, said could open the door to an “incredible opportunity” in areas where the industry has been unsuccessful in developing the Bakken.
However, there is still a belief that the formation might be little more the overflow from Bakken-generated crude.
Formations distinct? For some there isn’t even a shadow of doubt.
Glenn Dawson, chief executive officer of Calgary-based NuLoch Resources, insists the Three Forks-Sanish formations are distinct and believes the prospects in his company’s North Dakota holdings extend across the border into Saskatchewan, where the Sanish is known as the Torquay.
NuLoch has already earned about 51 gross sections of land in Saskatchewan by drilling a horizontal well to a depth of almost 7,000 feet and, through a farm-in deal, has expanded its net undeveloped position to 36,300 acres.
Dawson said the farm-in was with a private U.S. company that has 260,000 acres in North Dakota, where its exploration efforts have moved from failures to successes over the past three years.
He said NuLoch hopes to have three wells into the Saskatchewan play by the end of 2009 by applying the same technology the private U.S. company and Calgary-based Baytex Energy Trust are using.
Baytex estimates initial production rates will average about 190 barrels per day and reserves could run to 300,000 barrels per well.
Baytex Chief Executive Officer Tony Marino affirms that his trust’s project, using multizone fracturing from horizontal wells, yielded net production of 341 barrels of oil equivalent per day in late 2008 and could lead to 150 to 300 wells with average initial rates of 190 boe per day or more per well at average per-well recover rates of 280,000 boe.
He said the current program is “certainly economic” at current oil prices and should improve even more on the cost and production sides as experience is acquired.
Marino said current well costs of about US$4.5 million should decline as knowledge is gained and service costs are trimmed.
It does no harm that low gas prices have forced drilling rigs from gas-prone Alberta to oil-rich Saskatchewan, with day rates dropping by 15 to 20 percent from last year, intensifying competition among contractors.
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