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CNQ pulls contrarian move Acquires Devon’s conventional gas-weighted Canadian business for C$3.13B; largest deal by a Canadian energy company in five years Gary Park For Petroleum News
Canadian Natural Resources (often better known by its stock symbol of CNQ) has frequently taken a contrarian view of the oil and natural gas world.
It was one of the first about seven years ago to start shutting-in production and scaling back on exploration.
Then, just as its gas peers were following suit, it paid US$4.3 billion for Anadarko’s gas-weighted assets in Canada before returning to its sustained period of reducing gas output and spending.
Then, with the industry showing little desire to increase its exposure to gas, CNQ did exactly the opposite on Feb. 19 by making a successful bid of C$3.13 billion for the Canadian conventional business of U.S. independent Devon Energy.
In the process it pre-empted Devon’s plans to open a data room in February to do a sales pitch on the holdings.
Whether CNQ is actually leading the way on a trend-reversal for gas is not clear.
Largest deal in 5 years But the deal is the largest by a Canadian energy company in five years since Suncor Energy bought Petro Canada for C$22.9 billion.
The signal by CNQ that it could be reviving its interest in gas comes as a surprise, trailing by only a month its decision to abandon efforts to sell Montney formation gas assets in British Columbia.
Chief Executive Officer Steve Laut told analysts that gas accounts for 70 percent of the 272.2 million barrels of oil equivalent being sold by Devon.
“The metrics on the gas we think are very reasonable and fair,” he said, noting that gas in storage is down “very significantly” this year, setting the stage for “pretty strong” gas pricing this year and in 2015.
Laut also drove home the point that CNQ is well positioned to integrate assets that are concentrated in the Peace River Arch of northwestern Alberta and the gas plays of northeastern British Columbia, combined with the fact that many of the properties are being jointly developed by the two companies.
Laut said CNQ knows the Devon properties so well “we have home field advantage.”
Devon’s dim view of gas For its part, Devon said the sale illustrates its dim view of gas as a profit driver, reporting that its own gas production dropped 7 percent in 2013 to 2.4 billion cubic feet per day, with its Canadian output down 11 percent to 451 million cubic feet per day.
Devon Chief Executive Officer John Richels — formerly head of the company’s Canadian unit — said the proceeds will be used to repay debt incurred in financing the US$6 billion Eagle Ford acquisition from GeoSouthern Energy which is scheduled to close this quarter.
However, he said Devon will retain its Horn River basin properties in British Columbia along with its Lloydminster and heavy oil assets in Alberta and Saskatchewan.
CNQ said the assets it is gaining currently yield 383 million cubic feet per day of gas, 10,800 barrels per day of light crude and 12,000 bpd of natural gas liquids and are projected to boost CNQ’s output this year by 11 percent from the guidance range of 521,000-560,000 boe per day, including 1.14-1.18 bcf per day of gas.
M&A activity quickening? The deal points to a quickening of M&A activity in Canada, with Talisman Energy hoping to unload a big chunk of its Montney holdings for C$1.5 billion and Baytex Energy announcing plans to buy Aurora Oil & Gas for C$1.8 billion.
Adam Waterous, global head of investment banking at Scotia Capital, suggested that the industry may be resetting its expectations after a long quiet period on the M&A front.
He said that sometimes a “cure for low deal activity is low deal activity.”
Chris Seasons, president of Devon Canada, is not so sure the CNQ transaction reflects a changing mood.
“Certainly, recent gas prices have been encouraging for people. But I wouldn’t sing hallelujah from the rooftops in that the buy-sell spread has closed. I think it’s more a function of the quality of the assets than anything,” he said.
Seasons said the sale was more about unloading some high-value assets that could not compete internally for capital with Devon’s U.S. light oil opportunities.
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