Anadarko moves ahead with Canada pullout

Bear Head LNG project to be sold to U.S. Venture Energy for $125 million; Anadarko has 18-month option on throughput

Ray Tyson

For Petroleum News

U.S.-based Anadarko Petroleum has found a buyer for its Bear Head liquefied natural gas subsidiary, representing the last of the company’s Canadian properties. Anadarko earlier put its Canadian exploration and production assets up for sale.

Anadarko said it intends to use proceeds from the Canadian sales to help pay down more than $20 billion of debt it would incur with the planned acquisitions of E&P independents Kerr-McGee and Western Gas Resources.

The divestiture program likely will include non-core Kerr-McGee and Western Gas assets. But Anadarko said these sales would not be announced until after the Kerr-McGee and Western Gas deals close, probably during this year’s third quarter.

Western Gas owns Canadian properties through its Western Gas Resources Canada subsidiary but it is unknown whether Anadarko plans to sell or retain Western Gas’ Canadian assets. Kerr-McGee has no Canadian properties.

Anadarko agreed to sell its Bear Head LNG subsidiary to privately owned U.S. Venture Energy for $125 million, Anadarko said July 10. As part of the deal, Anadarko would have an 18-month option to secure up to 350 million cubic feet per day of throughput capacity. The option would begin when the transaction closes, hopefully “within a few weeks,” Anadarko said.

The sale to U.S. Venture Energy includes all assets, rights and obligations associated with the Bear Head LNG project, excluding long-term pipeline transportation agreements, Anadarko said.

Anadarko retaining ability to supply LNG

Anadarko had big plans for the Bear Head project in 2004 when it acquired the property from Access Northeast Energy, a private Canadian company whose sole project was a proposed LNG receiving terminal on the coast of Nova Scotia.

When Anadarko bought the Bear Head, front-end engineering and design had been completed for a terminal capable of processing up to 1 billion cubic feet a day of LNG. The terminal site, which was expected to begin commercial operations in late 2007, is at Bear Head, Point Tupper on Cape Breton Island, along the Strait of Canso.

Anadarko said in 2004 it wanted to secure processing capacity for natural gas it produced in Algeria and Qatar, two of the world’s top LNG exporting countries.

Bob Daniels, Anadarko’s senior vice president of exploration and production, said then the Bear Head project would give Anadarko a competitive advantage in international natural gas development by providing the company with a low-cost, low-risk entry into the LNG business.

“Participating in the commercialization of international natural gas resources is becoming more necessary in the upstream industry and is consistent with Anadarko’s growth strategy going forward,” he explained.

He added: “Using the planned Bear Head terminal as a foothold, we expect to partner with other major entities such as national oil companies to facilitate the broader value chain of investment, with the primary purpose of using re-gasification as a leveraging vehicle into new upstream natural gas opportunities and profitability.”

Anadarko’s Kurz said the company told investors in 2004 Anadarko would either secure an upstream supply source or would explore other options with its terminal within a two-year period. “With this agreement, we retain the upstream opportunity in the near term without owning and operating the LNG terminal,” Kurz said.

Less than two weeks before the Bear Head LNG announcement, Anadarko said it would sell its wholly owned Canadian E&P subsidiary, Anadarko Canada, as part of its “portfolio refocusing efforts” related to the Kerr-McGee and Western Gas acquisitions.

“Properties like ours are in high demand in Canada right now, attracting valuations significantly above those reflected in our stock price,” Anadarko chief executive Jim Hackett said. “This arbitrage opportunity motivates us to essentially trade out of the Canadian operations and into the Kerr-McGee and Western properties.”

Anadarko Canada produces about 340 million cubic feet of equivalent per day, about 85 percent of which is natural gas. Year-end 2005 proved reserves in Canada totaled nearly 1.6 trillion cubic feet equivalent, of which almost 85 percent were natural gas and 76 percent were proved developed.

Anadarko agreed to acquire Kerr-McGee for $16.4 billion in cash or $70.50 per Kerr-McGee share, plus the assumption of net debt and other liabilities estimated at $1.6 billion. In a separate deal, Anadarko agreed to buy Western Gas for $4.7 billion, or $61 per Western share, plus the assumption of debt and other liabilities estimated at $600 million.