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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2007

Vol. 12, No. 13 Week of April 01, 2007

Canada leads global pack in reserve prices

Gary Park

Petroleum News

Canada set the world pace last year for proved plus probable asset prices, powered by Alberta oil sands deals.

The annual upstream review by John S. Herold Inc. and Harrison Lovegrove & Co. said the so-called 2P prices averaged US$15.69 per barrel, a blistering $8.93 per barrel higher than 2002.

They were close to three-fold higher than worldwide averages according to the study which analyzed 280 global upstream transactions valued at $1.66 billion.

Many of the oil sands deals also involved exploration acreage and developing assets, but there was significant resource potential, the study said.

While some of the oil sands assets have a producing component, most buyers are locking up long-term properties.

The study said a combination of record cash flows and earnings, bolstered by strong commodity prices, boosted worldwide proved reserve prices up 34 percent since 2002 to $12.86 per barrel of oil equivalent.

North American proved reserve numbers rose 20 percent to $17.89, including $20.89 in Canada.

Fifth successive record for asset values

The value of assets transactions set a fifth successive record, climbing above $60 billion.

Natural gas claimed a 53 percent share of the total deals in proved reserves, shrugging off a year-over-year drop in gas prices.

China’s state-owned oil companies were major players in 2006, pumping $8.5 billion into the global M&A market.

North America accounted for 55 percent of total global deals.

John S. Herold Chairman Arthur Smith and Martin Lovegrove, chief executive officer of his firm, said the trends may continue this year, but warned that 2007 could be a “frustrating year for the industry.”

“Earnings and cash flow could be constrained as costs continue to rise while the annual average commodity prices look as through they will be challenged to rise above those seen in 2006 unless there is some major geopolitical event,” the executives said.

They said there are early signs of assets coming to market in abundance, but unless there is an uptick in commodity prices “it is almost certain that deal prices will fall against those seen last year.”

“Some sales are also likely to be withdrawn as buyers fail to offer prices that match the expectations of sellers. Indeed, we have already started to see this feature developing.”






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