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September 2009

Vol. 14, No. 38 Week of September 20, 2009

Fate of Petro-Can Alaska acreage unknown; Suncor divesting some natural gas

Suncor Energy is planning to divest a chunk of its natural gas assets by the end of 2010, news that might not bode well for Alaska.

“We will go through a significant downsizing of those assets,” John Rogers, vice president of investor relations, told an investment conference hosted by Calgary brokerage Peters & Co on Sept. 15.

Since Suncor’s Aug. 1 acquisition of Petro-Canada, which includes significant gas-prone exploration acreage in northern Alaska, the company has been focused on cost-cutting and growing its oil sands operations in northern Alberta;

All about oil sands

“It continues to be all about the oil sands. The oil sands will be the growth vehicle for the company,” Rogers said.

“We will be spending, in the future, less money on natural gas than the combined two companies have been spending in the past,” Rogers said.

Calgary-based Suncor is currently Canada’s fifth largest natural gas producer and the largest oil and gas company headquartered in Canada.

“We have not been happy with the returns on some of those (natural gas) assets,” Rogers said. Suncor is planning to sell any natural gas assets that aren’t in the top quarter of profitability, he said.

Meanwhile, an analyst told Canadian Press he expects Suncor to focus on divesting some of the higher cost natural gas assets it acquired through its purchase of Petro-Canada. Such assets are “most vulnerable in an era of volatile natural gas markets,” CP reported Sept. 15. (Natural gas is currently in the range of US$3.50 per 1,000 cubic feet; a year ago it was US$14.)

Philip Skolnick, an analyst with Genuity Capital Markets, told CP that Suncor’s conventional gas operations in Alberta will likely be on the chopping block. However, shale gas properties in northeastern British Columbia might be more worthwhile for Suncor to keep because new drilling technology is improving the economics of developing those kinds of plays.

Will auction gas assets

In a Sept. 16 telephone interview with Petroleum News, Suncor spokesman Dany Laferrière did not have any information on the status of Petro-Canada’s acreage in Alaska’s Brooks Range Foothills, which it shares in partnership with BG Group and Anadarko Petroleum. But Laferrière did say that the list of gas assets on the chopping block would be compiled over the next couple of months and that the properties would be sold through an auction, “a competitive bid process. Our ultimate goal is to have all sales done by the end of 2010,” he said.

However, Suncor wants to get a good price for its assets, so, “we won’t be foolish about it,” Rogers said. “We will get the best value for those projects. 2010 is the target, but ... if we have to wait a little longer we’ll do so.”

Suncor’s position on its natural gas assets has not been a secret, Rogers said. “Right from the beginning of the merger … we have not been happy with the returns that are coming out of both sides of the natural gas assets, both ourselves and the legacy Petro-Canada.”

Emphasis on low cost investments

In late April, after the acquisition of Petro-Canada had been announced, Suncor Chief Executive Officer Rick George said the merger was a “chance to move us in some different directions,” with an emphasis on a low-cost company that puts its emphasis on return on capital.

Before the merger, Suncor was viewed as an oil sands company, owning the world’s second-largest mining operation north of Fort McMurray, Alberta, and downstream refineries that process heavy crude into gasoline, lubricants, aviation fuel and other products.

Petro-Canada’s portfolio contained a more diverse group of assets, including offshore fields in eastern Canada, oil sands operations, investments in Libya and Syria, and a chain of gas stations in Canada.

Portfolio goal 70 percent oil sands

Right after the merger, Rogers said, Suncor’s business was split evenly between oil sands and everything else.

The company’s goal is to eventually have a portfolio that is 70 percent oil sands and 30 percent everything else.

In addition to hundreds of thousands of acres of oil- and gas-prone leases in the National Petroleum Reserve-Alaska and on the eastern North Slope of Alaska, Suncor also inherited Petro-Canada’s western Brooks Range Foothills assets, a net of approximately 1 million exploration acres, which Anadarko operates.

Anadarko, Petro-Canada and BG have completed two years of exploration drilling on a group of natural gas leases around Umiat that they call the Gubik Complex, and were headed into the coming winter exploration season with plans for a two-rig drilling program. But those plans are on hold, reportedly waiting on a capital budget decision from Suncor.

The Gubik Complex exploration program was the first to target commercial quantities of natural gas in northern Alaska, its first well testing at rates of up to 15 million cubic feet per day and proving up the previously discovered, but undeveloped, Gubik gas field, one of the prospects in the complex.

The development of discoveries in the Gubik Complex depends on the establishment of pipeline infrastructure that would take northern Alaska’s stranded gas into Canada to markets in the continental United States, including a possible small-diameter bullet line south to supply Alaska markets.

—Petroleum News






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