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Korea, China locking horns in Canada State-run Korea National Oil Corp. scoops up Canadian assets of Hunt Oil; is 2/3 of way toward goal of 300,000 boe per day by 2012 Gary Park For Petroleum News
South Korea is throwing out a stiff challenge to China in the Asian tussle for petroleum assets in Canada.
Cash-laden Korea National Oil Corp. has rounded up all of Hunt Oil of Canada’s producing and undeveloped assets for C$525 million, moving it 11,720 barrels of oil equivalent per day closer to its worldwide goal of 300,000 boe per day by 2012.
Provided the Hunt deal clears a Canadian government review in early 2011, KNOC will have rounded up about 190,000 bpd of producing properties, led by 60,000 bpd under the control of its wholly owned Canadian affiliate Harvest Operations and another 40,000-45,000 boe per day from its recent hostile takeover of British-based Dana Petroleum for US$2.6 billion.
The Hunt package includes 52.9 million boe of proved and probable reserves in Alberta and British Columbia and 376,000 net undeveloped acres, covering a full mix of prospects.
Third-quarter production from the properties was 1,085 bpd of light oil, 3,050 bpd of natural gas liquids and 45.5 million cubic feet per day of natural gas.
Price could rise The purchase price could rise another C$25 million if natural gas rises above unspecified “pre-determined levels” over the next two years.
Harvest Chief Executive Officer John Zahary said the mix, which includes a 35-40 percent gas liquids component, ties in with his company’s mandate and offers the chance to “create some value.”
Harvest plans to dig deeply into KNOC’s pockets, setting a capital budget of C$1.4 billion for 2011, including the purchase price for Hunt, C$450 million to drill 200 wells this winter and C$240 million for the design and construction of the company’s BlackGold oil sands project.
It will also spend C$190 million on a refinery turnaround, debottlenecking, ongoing capital outlays and retail marketing of its North Atlantic Refining facility in Newfoundland.
The objective, through improved operating costs, energy efficiency and operating reliability, is to achieve throughput of 101,500 bpd of feedstock at the refinery, but there has been no talk about reviving a planned C$2 billion, 75,000 bpd expansion.
Hunt not leaving Canada Privately owned Hunt made its debut in Canada 10 years ago and, despite unloading all of its holdings to KNOC, has no intention of quitting Canada.
A spokeswoman said the company is developing a business plan to rebuild its Canadian portfolio, with a stronger focus on oil-prone assets in the Deep basin region straddling the northern British Columbia-Alberta border, which is yielding 5,000 boe per day.
KNOC set up shop in Canada in 2006 when it paid C$270 million to Newmont Mining for the BlackGold oil sands project, then stunned observers in October 2009 by forking over C$4.1 billion for Harvest Energy Trust, from whom Harvest Operations derives its name.
In offering a 47 percent premium to Harvest’s 30-day trading average leading up the takeover, KNOC paid C$63,000 per flowing barrel of production, compared with about C$44,800 per flowing barrel for Hunt, which is more in line with prevailing acquisition values.
Harvest hopes to bring BlackGold into production by late 2012 or early 2013, backed by regulatory approval to produce 10,000 bpd initially. Using thermal recovery methods, it hopes eventually to produce 30,000-35,000 bpd from a lease that is strategically located alongside Cenovus Energy’s Christina Lake and Devon Canada’s Jackfish projects.
Working through Harvest, KNOC will also secure 42,000 acres of undeveloped land in British Columbia’s leading shale gas play in the Horn River basin.
KNOC officials have given high priority over the past two years to their long-term opportunities in Alberta’s Cold Lake and Peace River oil sands regions, estimating they have identified sufficient reserves to support bitumen production over 25 years.
One spokesman for KNOC’s mergers and acquisitions team said his company has the financial strength to invest in a wide range of upstream and downstream assets, noting there are some “attractive long-term opportunities in the oil sands.”
Korea Gas investing with Encana Taking a foothold in Horn River could put KNOC face to-face with Korea Gas, which says it will invest US$1.1 billion to jointly develop natural gas fields in Canada with Encana, starting with C$565 million over three years in the Horn River and Montney plays in British Columbia. Encana is also seeking a similar deal with China National Petroleum Corp., so far unsuccessfully.
The joint venture production could underpin a memorandum of understanding Korea Gas has signed with the Kitimat LNG partners, Apache and EOG Resources, to take 30 percent of that project’s planned exports.
China has been bulking up on Canadian oil sands assets over the past six years, starting out with China National Offshore Oil Corp. buying a 17 percent stake in MEG Energy and Sinopec buying 40 percent of Synenco’s Northern Lights project, which it has boosted to 50 percent since Total acquired Synenco.
From those entries through startup junior companies, the pace has moved into high gear, including Sinopec’s US$4.65 billion purchase of ConocoPhillips’ 9.03 percent share of the Syncrude Canada operation; PetroChina’s C$1.9 billion deal for 60 percent of two undeveloped leases held by Athabasca Oil Sands Corp.; and China Investment Corp.’s C$817 million purchase of a 45 percent interest in bitumen assets held by Penn West Energy Trust and C$435 million for a 5 percent equity position in the trust.
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