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Nova Scotia waters hold ‘win-win’ gas find
Shell Canada and EnCana might be sitting on the brink of a deal — but not the blockbuster Shell takeover of Canada’s largest independent oil and gas producer that was circulating late in 2005.
This one could cost Shell US$1.5 billion, give it 950 billion cubic feet of new natural gas reserves and bail it out of a tightening corner off Canada’s East Coast.
For Scotia Capital analyst Greg Pardy it holds the promise of a “win-win” for both companies — lifting the weight of Nova Scotia’s Deep Panuke field from EnCana, which has shelved the project for three years while it engages in a so far fruitless search for additional gas to make the venture profitable. Shell should have cash Pardy thinks Shell will have enough cash from operations to cover its C$2.7 billion capital spending in 2006, leaving more than C$1 billion in cash and cash equivalents.
It is also in danger of paying a heavy price for its 31.3 percent stake in Nova Scotia’s Sable gas project, which has a reserve life of less than four years while the company is tied into “take-or-pay” shipping contracts that extend to 2015 under which it will pay for pipeline capacity even if it can’t produce the gas to cover its commitment.
Pardy suggests that in the “absence of a natural gas supply solution, the pressure for Shell to incur an impairment charge in connection with its pipeline commitments may only intensify over time.”
To ease that threat, buying EnCana’s nearby Deep Panuke field would be a worthwhile objective, Pardy said in a research note to clients.
—Gary Park
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