Stop us if you’ve heard this one before.
Rumors catch fire that a Chinese state-owned enterprise is stalking Calgary-based Husky Energy.
Husky shares go on a joyride.
Denials get issued and the shares drop.
It happened in early 2002 and it happened again in late November 2004.
In fact the 2002 episode came about six months after Husky admitted it was discussing a possible takeover deal with Total that apparently fizzled when the French giant walked away, unable to meet the price expectations of Hong Kong tycoon Li Ka-shing, who personally and through his family owns 71 percent of Husky.
No sooner had the rumor mill settled down than Husky, under pressure from the Toronto Stock Exchange, stunned the Canadian oil patch by disclosing it was in talks with PetroChina, the publicly traded subsidiary of state-owned China National Petroleum, which accounts for two-thirds of China’s oil and gas production.
Again the deal making evaporated as Husky shares made a sharp run-up and the Chinese reportedly found the price too much to swallow.
What has changed since is China’s hunger for energy that its struggling domestic industry can’t satisfy as oil imports surge 40 percent ahead of last year.
Forecasters expect China to rely on imports for 60 percent of its oil supply by 2020, compared with 36 percent today.
All of which makes Husky, given its Hong Kong ties and operations in the South China Sea along with its rich holdings in Canada’s heavy oil sector, a desirable quarry.
But the November round of rumors was scuttled when Sinopec (the shorthand for China Petroleum & Chemical) denied that it was negotiating to buy all or part of Husky. Whether PetroChina was ever involved in talks is not clear.
What occurred during the flurry of speculation was that Husky shares, which had already gained 40 percent this year, climbed to a 52-week high of C$35.65, then took their biggest drop since 2002 when Sinopec issued its statement.
Among analysts there was a consensus that the Chinese lost interest, faced with Husky’s market capitalization of more than C$14 billion, which would have made a deal the second largest in Canadian history next to the merger of PanCanadian Energy and Alberta Energy Co. to create EnCana.
On top of that, a rapid climb in the value of the Canadian dollar against the Chinese currency provided a further disincentive.
But there is little doubt that Husky has all the elements the Chinese are looking for, including output of 325,000 barrels of oil equivalent per day, a 72.5 percent share of the 67,000 bpd expected from Newfoundland’s White Rose field by early 2006, up to 35,000 bpd from the Tucker oil sands project as early as late 2006 and plans for a 200,000 bpd Sunrise oil sands project. In addition, Husky owns a heavy oil upgrader that should soon have capacity of 82,000 bpd.
Husky’s reported interest in Enbridge plans for a possible 400,000 bpd pipeline from the oil sands to a deepwater port on the British Columbia coast opens the door to tanker shipments to Asia.
But Husky’s asset mix, including a chain of gasoline stations in Western Canada, could also be a deterrent.
However, the betting is that rumors will continue to fly until Husky’s ownership changes hands and that could include deals for the component parts.
Wood Mackenzie report in, but nobody’s talking
Wood Mackenzie, which issued a 2002 study that ranked Alaska 55 out of 61 oil provinces when it came to profitability per barrel of oil for oil companies, has a new report out. But the results of the high-priced study are off-limits to everyone except those governments and companies that purchased them, including the Alaska Oil and Gas Division and the Alaska Legislature’s Budget and Audit Committee, chaired by Rep. Ralph Samuels, R-Anchorage.
Judy Brady, executive director of the Alaska Oil & Gas Association, and an aide in Samuels’ office told Petroleum News that they had to sign confidentiality agreements with Wood Mackenzie when the study results were released at the end of November and are currently working with the international research and consulting firm to determine what they can and can’t release to the public.
ConocoPhillips task force works to lower NPR-A drilling costs
A ConocoPhillips Alaska task force headed by Rick Mott, the company’s vice president of exploration and land, is looking for ways to lower the cost of exploration in the National Petroleum Reserve-Alaska. Contractors are being asked to come up with new ways of doing things in NPR-A where the cost of logistics often rivals the cost of drilling as ConocoPhillips and its partners move farther west into NPR-A.
One of the solutions being discussed is using an aircraft similar to the Sikorsky Skycrane to haul in drilling equipment and supplies – something that was done in the early days of exploration on the North Slope. See the adjacent 1969 photo of a Sikorsky Skycrane which was owned and operated in Alaska by Era Aviation. The Skycrane, which has a 20,000 pound lift capacity, was used to haul in all types of equipment, including drilling rigs in large sections.
Another option being considered is barging in drilling equipment and all-terrain vehicles (such as rolligons) during the summer and then waiting for the ground to sufficiently harden to launch operations.
ConocoPhillips Alaska spokeswoman Dawn Patience told Petroleum News that the task force is expected to be finished with its analysis by the end of the 2004-2005 North Slope winter drilling season.
