Suncor sells assets to UK, Qatari firms
Gary Park For Petroleum News
Oil sands powerhouse Suncor Energy is selling its conventional natural gas and oil business in Western Canada to a newly formed joint venture of United Kingdom energy giant Centrica and state-owned Qatar Petroleum International for C$1 billion.
Suncor said April 15 the deal excludes the majority of its two unconventional interests outside of the oil sands — its oil play at Wilson Creek, Alberta, and its gas properties in the Montney region of northeastern British Columbia.
Assuming the deal is approved by Canadian competition and foreign investment regulators and is concluded in the third quarter, the partnership of Centrica (60 percent operator) and QPI (4 percent) will acquire 978 billion cubic feet equivalent of gas operations in northeastern British Columbia, southern Saskatchewan and several areas in Alberta which produce 250 million cubic feet per day.
Steady portfolio building For Centrica, the deal is the continuation of 13 years of steadily building a portfolio of gas assets to serve 6 million residential and commercial customers across North America.
It comes after a failure last year by Centrica to negotiate a 20-year LNG supply deal with Qatar, but the new Centrica-QPI partners have indicated that their only objective with the Suncor acquisition is to use the gas to serve the North American market.
However, QPI also signed a memorandum of understanding on April 15 with ExxonMobil to jointly evaluate unconventional gas resources in North America and global LNG opportunities. QPI, ExxonMobil and ConocoPhillips are partners in the Golden Pass LNG import terminal at Sabine Pass, Texas, which they hope to use as an LNG export terminal.
Nasser Al-Jaidah, chief executive officer of QPI, said in a statement the investment in Canadian gas assets “is a significant step in the development of QPI’s global upstream business.”
Centrica Chief Executive Officer Sam Laidlaw said the deal “provides attractive returns in a region we know well and significantly increases the size and quality of our portfolio,” adding it has the “potential to improve returns further.”
More gas reserves a goal Wes Morningstar, a senior vice president with Centrica in Calgary, said that growing upstream operations is “an important step (to ensure Centrica) is a solid long-term partner” to the company’s North American customers and “represents an ideal strategic fit” for his company’s upstream portfolio.
“You will see us continue to do acquisitions on the natural gas side,” Morningstar said. “We would like to get our hands on more reserves while gas prices are low.
“We think we can use horizontal wells and multi-stage fracking to draw additional resources from large, old conventional reservoirs.”
He said the critical metric for Centrica is its ability to use its financial strength and long-term investment horizon to be a low-cost producer.
“We’ve been beaten up somewhat in the last few years in terms of natural gas prices, but we still believe that natural gas is a strong fuel of the future and there will be important developments in it in Western Canada,” he said.
Jeff Lanthier, a Centrica spokesman, said only minimal drilling of the Suncor properties is expected towards the end of 2013 or in early 2014.
Estimated 1 tcf in reserves Once the transaction is completed, Centrica will have in excess of 5,000 producing wells, with estimated reserves of 1 trillion cubic feet equivalent and production of more than 300 million cubic feet equivalent per day, he said.
The bulk of Suncor’s gas production has been used to generate steam for its thermal recovery oil sands operations, but the company has heavily scaled back its daily gas volumes to an average 290 million cubic feet in 2012 from 574 million cubic feet in 2010.
Chief Executive Officer Steve Williams said in a statement the Centrica-QPI deal is “further proof of our commitment to capital discipline and aligning assets with strategic objectives.”
He said Suncor will “continuously review and refine our portfolio of assets to ensure we are investing in projects that deliver profitable growth and strong returns for our shareholders.”
Centrica moved into the North American upstream in 2000 by purchasing Avalanche Energy for US$253.5 million and gaining 55 million cubic feet per day of production, then making a series of agreements to take ownership of production assets in Western Canada, including a C$58 million acquisition from Encana and a C$368 million purchase of 180 million cubic feet per day of assets from Suncor in 2010.
Lanthier said Centrica will focus over the next six to 12 months on integrating the Suncor assets, although its acquisitions and divestiture department will continue an active evaluation of a wide range of E&P assets.
Asked if Centrica has any intention of expanding into larger pipelines or gas processing facilities, he said “we are always seeking opportunities to improve our position with respect to operated plants and infrastructure.”
“The objective for the foreseeable future is to maximize netbacks for existing production through utilizing unused capacity in existing infrastructure.”
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