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Vol. 15, No. 30 Week of July 25, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Apache acquires BP’s Western Canada natural gas operations in Alberta, British Columbia

By rounding up embattled BP’s natural gas operations in Western Canada, Apache has strengthened its role as one of Canada’s largest gas producers at a time when it is at the forefront of plans to open up markets in Asia for gas from British Columbia and Alberta.

The big Houston-based independent will pay US$3.25 billion for the Canadian properties, which are concentrated in the Montney and unconventional gas plays of Alberta and northeastern British Columbia, boosting its overall Canadian output by 13 percent and its gas by 66 percent.

Apache Chief Executive Officer Steven Farris rated the Canadian portion of the US$7 billion transaction as the cream of the deal, meshing with his company’s existing unconventional gas assets and its emerging Horn River properties.

“If it hadn’t been for the Gulf of Mexico incident … I’m sure we wouldn’t be sitting here tonight,” he told analysts in a conference call.

Daily production from BP’s Canadian holdings yields 240 million cubic feet of gas and 6,529 barrels of liquids.

The BP deal will raise Apache’s Canadian volumes to about 120,000 boe per day, from estimated proved additional reserves of 224 million barrels of oil equivalent and 1.35 million net acres, including significant positions in emerging unconventional plays such as the Montney, Cadomin, Doig and coalbed methane.

Apache’s Canadian operations produced 340 million cubic feet per day of gas and 16,557 bpd of liquids in the second quarter. At year-end 2009, it had proved reserves of 531 million boe and 5.6 million gross acres.

BP keeping oil sands

The sale excludes BP’s hefty oil sands division, built up in just the last few years and consisting of a joint venture with Husky Energy, the Terre de Grace project with Value Creation and a joint venture with Devon Canada to develop the Kirby lease.

Also left in BP’s hands are exploration leases in the Beaufort Sea, where it has committed to spend C$1.2 billion exploring for oil, and a natural gas liquids and marketing business in Alberta.

In May, BP was grilled by Members of Parliament in Ottawa about the safety of Arctic drilling and wasn’t able to assure the legislators that a blowout on the scale of the Gulf of Mexico would not spill oil into the Beaufort for several months.

A BP Canada spokeswoman said 520 of the Canadian workforce of 1,300 will have directly affected by the deal.

She said Apache will decide how many current BP employees will be transferred, but BP is certain that the assets changing hands are “valuable because of the people who know them and run them.”

The spokeswoman said that BP’s long-term strategy for Canada is keyed on the oil sands and Beaufort.

Analyst: ‘significant lift’

Michael Tims, chairman of investment dealer Peters & Co., said most acquisitions on this scale have been corporate rather than limited to assets.

He said the result is a “significant lift” to Apache’s Canadian operations, which include a joint effort with EOG Resources to build and operate the proposed C$3 billion Kitimat LNG project, liquefying gas from the shale and tight deposits of Western Canada for export to Asia.

It is also involved in a major partnership with Encana to develop the Horn River field, north of the Montney in British Columbia.

Apache Canada President Tim Wall said his company will “aggressively” develop the new properties.

Laura Lau, an energy analyst with Sentry Select Capital in Toronto, said it is not often that “big assets from a big company” are put on the block.

“Typically, there’s a lot of meat on the bone when you do make an acquisition from a big company like this,” she said. “For Apache, it really complements what they already have in Canada.”

BP has conducted a series of makeovers in Canada over the past two decades, starting when its Canadian division was spun off and created Talisman Energy, followed in the late 1990s when it bought Amoco.

At that time, BP solid its Canadian oil assets for C$1.6 billion to Canadian Natural Resources and Penn West Petroleum, including land that is now the operating Horizon oil sands mine.

BP then adopted a low-profile role as a gas and gas liquids producer, refusing to join the scramble to secure a place in the oil sands until it teamed up with Husky in the C$2.5 billion Sunrise project and took stakes in two early-stage projects.

— Gary Park



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