Oil Patch Insider

Allies do battle over Arctic gas

If it’s not war it sure has the smell of something intense.

Petro-Canada and Canadian Oil Sands Trust, both partners in the Syncrude Canada consortium, are pulling out all stops to land the Arctic natural gas assets of Canada Southern Petroleum, with Canadian Superior Energy sniping from the bleachers.

With the bidding battle in the homestretch, Canada Southern put out word that it favored COST’s offer of US$9.75 per share over the earlier hostile takeover attempts by Petro-Canada of US$7.50 and Canadian Superior’s shares-and-cash counterbid that it argued was worth US$13.28 by late June.

Petro-Canada then did what it had earlier said it wouldn’t by hiking its offer to US$11 per share and COST retaliated the next day by putting US$11.10 on the table.

The latest Petro-Canada bid is contingent on Canada Southern dropping its shareholder rights plan, saying it would see a regulatory hearing to stop the poison pill being implemented.

While the tit-for-tat contest rages, many observers are bemused by the wrestling over a possible 927 billion cubic feet of natural gas resources in Canada’s Arctic Islands that are thought to be more than a decade from development.

Analysts are now certain there is little or no steam left in the battle.

Petro-Canada Senior Vice President Kathy Sendall said the Arctic holdings are a “strategic, long-term asset” for her company.

Buying Canada Southern would “add an important piece to our northern portfolio” and remove the economic burden of carried interests that opens the way for future development of the resources.

COST Chief Executive Officer Marcel Coutu reiterated that the Arctic gas provides a “low-cost financial hedge against the impact of significantly rising natural gas prices on our oil sands business.”

Subject to any further topped-up bids, Petro-Canada’s offer expires July 17 and COST has set a deadline of Aug. 1.

—Gary Park

Alberta Premier Ralph Klein on a hard sell in Washington, D.C.

In a 30-minute meeting in the West Wing of the White House June 27, Klein was brash enough to suggest Cheney might garner some votes for Republicans in the November mid-term elections if he could squeeze in a visit to the Alberta oil sands this fall and put the spotlight more squarely on the resource.

Straying where few politicians dare to tread by entering a foreign political arena, Klein told reporters it “would be politically wise” for Cheney and good for both U.S. politics and the Republican Party if Cheney were to see first hand what the oil sands are all about.

While Klein extracted a promise from Cheney that he “would try” to make the visit he was forced to cancel last September in the wake of Hurricane Katrina, he, despite constant efforts by his government, is making virtually no progress in conveying a message to U.S. voters that Canada is now consistently their largest source of crude oil.

A public opinion survey paid for by the Alberta government discovered that only 4 percent of Americans were aware of that fact.

Saudi Arabia was rated No. 1 by 38 percent, Iraq at 14 percent, Iran at 8 percent and Venezuela at 7 percent, while 6 percent cast their vote for the “Middle East.”

Klein was troubled about the “misconception,” arguing Canada offers a “very safe and secure supply of oil.”

The latest statistics from the U.S. Energy Information Administration show that Canada exported 793 million barrels of crude and oil products to the U.S. in 2005, followed by Mexico at 601 million, Saudi Arabia at 556 million and Venezuela at 550 million. All told the Persian Gulf contributed 839 million.

However, coinciding with 10 days when Alberta spent C$3.8 million to put its economy and culture on show in Washington, D.C., as part of a lobbying blitz, a congressional committee noted that rising production from the oil sands could elevate Canada to a top-five standing among global crude suppliers.

Jim Saxton, chairman of the Joint Economic Committee, noted that the large Canadian reserves of unconventional oil and their rapid development is “very good news for consumers in the U.S. and around the world.”

Republican chairman of the Senate Energy Committee, Pete Domenici, in a joint news conference with Klein, declared the U.S. is ready to increase imports of Canadian crude in direct relationship with how much is produced … “there can be no question about it.”

Part of the Washington delegation, Alberta Energy Minister Greg Melchin, called for a joint Canada-U.S. energy task force to streamline industry regulations, share technology and develop alternative and unconventional energy supplies.

Klein said Cheney thought the idea was worth pursuing, although Klein said in the State Department that the U.S. needs to act quickly to build new refineries to process oil sands crude.

“There has been no significant new oil refinery construction in the United States for more than 30 years,” Klein said. “Adding incremental capacity won’t be enough.”

He also made a plea for skilled U.S. workers to fill an estimated 30,000 oil sands and other energy related job vacancies, including welders, pipe fitters, carpenters and plumbers.

Adding to the oil outlook, Melchin told a media briefing that Alberta, in addition to 40 trillion cubic feet of remaining conventional gas, offers 500 tcf of coalbed methane and 1,000 tcf of tight sands and shale gas.

But that, too, is a difficult message to convey, according to Klein, who said few in the U.S. realize Canada meets 16 percent of U.S. gas demand.

He said that when he tells U.S. consumers they are “fired by gas from Canada … their eyes glaze over.”

—Gary Park

Editor’s note: Suggestions for Oil Patch Insider should be sent to Kay Cashman at [email protected]