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Providing coverage of Alaska and northern Canada's oil and gas industry
August 2006

Vol. 11, No. 35 Week of August 27, 2006

Battle over: No plans to develop Arctic gas

Gary Park

Canadian Oil Sands Trust is proclaiming victory in the drawn-out battle to take over Canada Southern Petroleum, but whether it ever directly benefits from the big prize of almost 1 trillion cubic feet of Arctic natural gas assets is a moot point.

For now, it has locked up 65 percent of Canada Southern’s 14.4 million shares and is giving the other 35 percent until Sept. 6 to tender to its offer.

Once the deal is concluded COST plans to unload Canada Southern’s scattered holdings in the Yukon, British Columbia and Alberta that yielded 1,210 barrels of oil equivalent per day in the second quarter.

The object of COST’s willingness to pay US$197 million is Canada Southern’s various interests in 184 square miles of Arctic Islands, which embrace seven significant discovery licenses, one production license, an estimated 927 billion cubic feet equivalent of marketable gas and a possible 13.7 billion cubic feet equivalent of proved and probable reserves.

COST, whose sole interest is 35.49 percent of the Syncrude Canada oil sands consortium, looks on the gas resource as a price hedge against the gas it consumes at the Syncrude operation.

A spokeswoman said the gas represents 25 years of the trust’s projected consumption in the oil sands, but even if a way is found to produce and deliver the gas to market COST has conceded it would not be the operator.

The best bet for that role is Petro-Canada, which says it has no immediate plans to develop the resource given that the most likely option would be an LNG operation.

Adding luster to the Canada Southern holdings was its net carried interests in the gas discoveries in the Melville Island area which allow the owner to avoid paying its share of any future development until a project is completed.

As of Aug. 19, COST said it had acquired 65 percent of the shares, easily surpassing its revised target of 50.01 percent and within sight of its original target of 66.66 percent.






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