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Foreign legion in retreat Canadian-based companies experience more downs than ups in overseas plays; can’t negotiate financing to develop strong prospects Gary Park For Petroleum News
Whether they have been looking for a way to hedge their bets, or using the Maple Leaf as a flag of convenience, Canadian-based companies operating outside of North America have found their foreign adventures less than rewarding in recent months.
Some of the choppiest waters have been in the North Sea, where low oil prices and financing problems have been the undoing of Oilexco and Bow Valley Energy.
Backed by proved plus probable reserves of 66 million barrels of oil equivalent and hopes of attaining 45,000 boe per day of production, Oilexco, faced with delisting by the Toronto Stock Exchange, ran afoul of its lenders.
Its assets have been placed under the control of Ernst & Young after its lenders, led by the beleaguered Royal Bank of Scotland, refused to advance any more funding.
Oilexco — the No. 1 drilling company in the North Sea for the past five years and a one-time market darling — has a portfolio that includes the Huntington field, one of the region’s biggest oil discoveries.
But that wasn’t enough to fend off insolvency for the company’s North Sea unit, whose assets and shares are expected to be sold in the second quarter, although Oilexco said it has no way of predicting who the ultimate buyer or buyers will be, nor the value that could be realized through a sale process.
BG Group, Talisman Energy, Nexen and Petro-Canada have all been mentioned as possible contenders.
It is shaping up as a sad exit for a company whose share values have ranged from a 52-week high of C$19.50 to under 7 cents.
Bow Valley finds buyer Bow Valley, with production of about 3,700 boe per day, found a buyer in mid-February, when Dana Petroleum, an independent United Kingdom oil and gas exploration and production company, negotiated a takeover for C$240 million, including the assumption of net debt and other obligations totaling C$197 million.
The deal is worth 50 cents in cash per common share, a 53 percent premium to the weighted average trading price for the 20 previous trading days, but almost C$6 lower than the 52-week high.
None has traveled a rockier road than Oilexco, whose once-lucrative North Sea interests were pumping 17,000 bpd, but the deepening credit crunch and the absence of any other source of financing prevented it from financing exploration activities.
In late 2008, the Royal Bank of Scotland demanded Oilexco’s North Sea subsidiary immediately pay back US$547.5 million and 100 million pounds sterling to the bank and other lenders, forcing the company’s board of directors to put the assets in play.
When a suitable purchaser failed to surface, the company entered creditor protection to the detriment of its parent company, shareholders, the bank and creditors.
Scrambling in T&T Life hasn’t been any easier across the Atlantic Ocean in the warmer waters of Trinidad and Tobago, where Canadian Superior and Challenger Energy have been scrambling to keep their heads above water on the highly rated offshore Intrepid block, where three natural gas discoveries have been reported by the two companies along with their third partner BG International, a subsidiary of British producer BG Group.
Canadian Superior said in February it was prepared to sell 25 percent or more of its interest in the block, while facing a demand from Canadian Western Bank for immediate repayment of its C$37.5 million credit line. That deadline was extended from Feb. 27 to March 12 after being reduced with a payment of C$9 million.
Meanwhile, Challenger has obtained an order from an Alberta court for bankruptcy protection from creditors, thus permitting the junior oil and gas company to keep control of its exploration property and evaluate strategic options, including outright sale of the company.
In mid-February, BG obtained an Alberta court order appointing Deloitte and Touche receiver of Canadian Superior’s position as operator of Intrepid.
The order also allows the receiver to charge Canadian Superior’s stake in the block up to US$47 million to pay for its share of costs under the operating agreement.
Canadian Superior said it will continue to monetize its interest in the block, applying the proceeds to its share of the costs, questioning the “motives of BG” in the process.
Others Other ups and downs on the global scene include:
• A C$499 million takeover by state-owned China National Petroleum Corp. of Verenex Energy (42 percent owned by Vermilion Energy Trust), which has a 50 percent stake in Libya’s Area 47, which is estimated to contain upwards of 2.15 billion barrels of oil and is scheduled to start production in 2011.
• In mid-December, Tanganyika Oil became a wholly owned subsidiary of China’s state-owned Sinopec in a C$2.07 billion transaction that secured oil and gas assets in Syria. Tanganyika, a unit of Sweden’s Lundin Group, has production-sharing agreements with Syria that produced a gross 16,670 bpd in the first half of 2008 and an estimated 5.5 billion barrels of oil in place in various fields.
• Sherritt International, which produces nickel and oil in Cuba, is now immersed in pivotal negotiations with the Cuban government, which stopped paying for the oil in mid-2008, apparently because of its difficulties sourcing U.S. dollars. In late January, Sherritt struck a surprise deal with state-run Pebercan, its joint-venture partner, to terminate a production-sharing contract covering 4,500 bpd. Sherritt will receive US$60 million and the oil wells will revert to the government. What isn’t clear is the future of its other Cuban oil production, which is not tied to Pebercan, and the company’s status in Cuba.
• Heritage Oil, in partnership with Anglo-Irish explorer Tullow Oil, has unlocked a 400 million-barrel oil and gas find in Uganda’s Alberta basin. Two of 16 exploration and appraisal wells have tested at more than 13,000 bpd and initial production of 4,000 bpd is set for the second half of 2009. Heritage is also operator of the first exploration well to be drilled on the highly prospective Miran license in the Kurdistan region of northern Iraq. The well is targeting three principal proven reservoir formations and is expected to be completed by late March. The Miran structures are estimated to contain billions of barrels of oil. Heritage has also received a license from the Tanzanian government to acquire stakes in four exploration licenses covering onshore and deepwater areas, carrying rights to earn 29.5 percent to 70 percent.
• Also active on the African continent, Addax Petroleum has boosted its stake in an offshore Gabon license to 68.75 percent from 50 percent, committing itself to drill two wells by the end of November. It holds stakes in two nearby licenses. As well, Abbax has reported a “significant” onshore oil find in Nigeria, where it already produces 6,000 bpd. It has a 100 percent working interest in the discovery under a production-sharing contract.
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