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Canadian companies weeding out the weak New decade launched with flurry of M&A action as Suncor offloads unwanted Petro-Canada assets, PetroBakken adds tech-driver plays Gary Park For Petroleum News
Canadian-based companies have added early sizzle to the 2010 mergers and acquisitions market, led by Suncor Energy’s swift action to weed out what Chief Executive Officer Rick George rates as weaker, noncore holdings inherited in the takeover of Petro-Canada.
Once-valued Petro-Canada natural gas assets in the U.S. Rockies have been tagged for sale to independent Noble Energy for US$494 million, while Suncor has put Western Canadian production of 360 million cubic feet per day on the block, which analysts think could yield proceeds of C$2 billion-C$4 billion.
The U.S. upstream assets include proved reserves of 53 million barrels of oil equivalent, generating 46 million cubic feet per day of gas output and 2,500 barrels per day of liquids, 80 percent within the Wattenberg field.
Included in the purchase, which is expected to close late in the first quarter, are 340,000 net acres, almost 200,000 located in the Greater DJ basin.
Noble said it has identified more than 2,000 drilling locations in Wattenberg, which it expects will grow the company’s net production by about 20,000 barrels of oil equivalent per day.
Noble President David Stover said his company now controls more than 530,000 net acres in the region, with production close to 52,000 boe per day, and is eager to exploit its technical and operational expertise to unlock further potential.
Initial production decline If buyers are found for Suncor’s Western Canadian gas interests, that will trim about 10 percent off the company’s total production — a loss George expects will be quickly replaced by new projects coming onstream.
He said completion of a gas divestment program will leave assets that are expected to provide a solid foundation to support long-term growth in the core oil sands business and enable Suncor to become one of the lowest-cost North American gas producers, with a new focus on unconventional gas.
The sales package, posted on the Web site of investment bank Macquarie Tristone, is divided among three regions and broken down into 15 bundles.
The regional breakdown includes 22,000 boe per day (or 132 million cubic feet per day of gas using the Canadian conversion rate) in the Alberta and British Columbia Foothills, 20,000 boe per day in the Alberta Deep basin and 18,000 boe per day in northeastern British Columbia.
Since concluding the Petro-Canada transaction, Suncor has indicated it plans to sell about one-third, or 400,000 million cubic feet per day, of its gas output.
George said in November that other holdings on the auction block would likely be interests in the North Sea and Trinidad and Tobago, as well as a corporate jet.
Assets widely scattered In a report issued in late December, investment bank Peters & Co. estimated Western Canadian gas assets sold for an average C$54,700 per flowing boe in the final quarter, up about 57 percent from the third quarter.
Barclays Capital analyst Paul Cheng said in a note he believes Suncor will be ready to sell for less than $30,000 per flowing boe, given the quality of the assets, which are widely scattered.
He said the gas is in conventional fields, which suggests it will not fetch a “lot of money.”
Macquarie Tristone describes the holdings as “high working interest, legacy gas reserves and production.”
Data rooms will be opened in stages from early 2010 to spring, then fall.
Suncor has said it is not interested in unloading small packages, preferring to find buyers who are looking for a good strategic fit from larger bundles.
A Suncor spokesman said the offering is “not a fire sale,” but transactions are scheduled for completion before the end of 2010.
PetroBakken purchase Also quick out of the starting gate in 2010, PetroBakken, a spin out from last year’s C$2.24 billion merger of Petrobank Energy and Resources and TriStar Oil & Gas, has agreed to buy junior oil and gas producer Berens Energy for C$336 million, including C$65 million of assumed debt.
Berens has current production of 3,650 boe per day, 78 percent in the West Pembina area of central Alberta, but Chief Operating Officer Gregg Smith said the major draw was the chance for PetroBakken to gain entry to Alberta’s Cardium oil play, currently rated as the largest onshore light oil pool in North America.
A trailblazer in the use of horizontal drilling and rock-fracturing technology, PetroBakken wants to apply those skills in the Cardium, having established their success in the Bakken formation of Saskatchewan.
Berens’ proved-plus-probable reserves of more than 11 million boe works out at C$92,000 per boe of production and C$30 per barrel of reserves.
But UBS Securities analyst Andrew Potter suggested in a research note that 17.5 million barrels of unbooked Cardium potential makes the cost look more reasonable.
Brian Kristjansen, an analyst with Genuity Capital Markets, said the legacy Cardium field is being revived with the use of multistage wells and is “going to be even better than the Bakken” given Alberta royalty incentives which cover drilling to March 2011.
Berens has reported success from two of three wells in the Cardium, which has been limited by uneven reservoir qualities in a sandstone deposit.
PetroBakken said it plans to ramp up drilling activity through a multirig program this year, working on 26,500 net acres and 100 identified drilling locations.
Although PetroBakken is working on the sale of 6,000 boe per day of noncore production, it still aims to hike production from a current 37,000 boe per day (excluding six Bakken wells that came onstream in December) to 46,000 boe per day at the end of 2010.
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