Canadian Natural Resources, going to the acquisition well yet another time this year, is gobbling up the lion’s share of remaining Canadian oil and gas properties offered by Houston-based Anadarko Petroleum.
CNR management characterized the pending C$698 million acquisition of largely natural gas properties as somewhat of a market coup, telling industry analysts Nov. 10 that the properties represent a near perfect fit to existing company operations in British Columbia and Alberta. The deal is expected to close in December.
“This acquisition fits with the company strategy to explore and exploit and to acquire and exploit in our core areas where we dominate the infrastructure and land base,” said Steve Laut, CNR’s chief operating officer. “As a result … Canadian Natural has a significant competitive advantage.”
So close is the fit that only $50 million worth of the properties being acquired by CNR are considered to be non-core to the company and will be sold, CNR said.
52 percent weighted to natural gas
With the acquisition of Anadarko properties, CNR said it would be 52 percent weighted to natural gas. The company also increased its previous 2004 guidance for both production and capital spending.
Anadarko is selling an additional C$155 million worth of Canadian properties to an undisclosed buyer. The company’s total Phase 2 Canadian divestiture package, including the sale to CNR, represents proved reserves of 55 million barrels of oil equivalent and more than 22,000 barrels of equivalent production per day.
In total, the big U.S. exploration and production independent has sold after-tax US$2.7 billion of Canadian and U.S. properties under the company’s 2004 property divestiture program.
“We’re ahead of schedule on the sale process and exceeding our value estimates,” said Jim Hackett, Anadarko’s chief executive officer.
Anadarko has said proceeds from the various sales are being used largely to pay down debt and to repurchase company stock.
Because of the close proximity of Anadarko assets to CNR infrastructure, CNR said it expects to shave about 10 percent from operational costs.
The Anadarko properties are in four western Canadian regions: Fort St. John in northeastern British Columbia, northwestern Alberta, the Two Hills area of central Alberta and Dawson in north central Alberta.
The properties produce about 105 million cubic feet of natural gas per day and 7,500 barrels of oil per day. The deal also comes with about 510,000 acres of undeveloped land.
British Columbia: 20 identified drilling locations
In British Columbia, the Anadarko properties “fit very well with our existing asset base and infrastructure” in the Fort St. John area, said Lyle Stevens, CNR’s senior vice president of exploitation.
He said CNR has identified 20 drilling locations and 25 well recompletion opportunities in a region that contains multiple zone prospects, which he said should reduce drilling costs. The properties are 84 percent weighted to natural gas, he said.
“We are very knowledgeable of the play types in this area,” Stevens said.
Northwestern Alberta: more than 20 drilling locations
In northwestern Alberta, Anadarko properties “augment CNR’s existing asset base and infrastructure” in the Grizzly and Big Stone areas, he said, noting that the deal also includes Anadarko assets near Grand Prairie, “which will allow us to expand our northwest core reach to the north.”
He said CNR also has identified more than 20 drilling locations and 10 well recompletions on the northwestern Alberta properties, which consist of 93 percent natural gas.
Two Hills: consolidation opportunities
In the Two Hills region of central Alberta, “the acquired assets are close to a perfect fit with Canadian Natural’s existing assets,” Stevens said, explaining that much of the land and many of the facilities overlap CNR assets. He said CNR already is a working interest partner in 14 of the Anadarko-operated facilities.
“In this region we have the opportunity to consolidate the acquired facilities with our own, which will improve facility utilization and reduce operating costs,” Stevens added. “We have operated in the area for 15 years and know the assets and geology extremely well.”
He said CNR has identified more than 30 drilling locations and more than 145 well recompletions in the Two Hills area. Ninety-five percent of current production is natural gas.
Dawson: only oil-weighted property
The Dawson asset in northern Alberta is the only oil-weighted property in the Anadarko package. Seventy percent of current production is light oil, Stevens said, adding that CNR has identified 20 drilling opportunities and an additional 20 well recompletions.
“Major commercial development of the Dawson oil pool was during the 1990s, and we believe there is excellent drilling potential remaining, as well as incremental recovery through water flooding,” he said.
The Anadarko deal follows two major acquisitions made by CNR earlier this year.
In February, CNR bought a two-thirds stake in the heavy oil assets of Petrovera Resources from Calgary producer EnCana and Houston-based ConocoPhillips for about C$467 million.
In April, CNR shelled out $280 million for Murphy Oil’s interest in the Ladyfern natural gas field near Fort St. John, as well as exploration lands in northeastern British Columbia and northwestern Alberta.
“This (Anadarko) acquisition is completed on very good metrics … and has a quick payout, providing additional cash flow” to help complete CNR’s Horizon Oil Sands Project in Alberta, Laut said.
CNR increased its 2004 forecast for daily natural gas production to 1.380-1.392 billion cubic feet from 1.371-1.383 bcf, and its daily oil forecast to 280,000-288,000 barrels from 279,000-288,000. Overall capital spending was increased to $4.548 billion from $3.850 billion.
Anadarko’s interest in the 84 fields being sold to CNR and the undisclosed buyer were no longer considered “to be core to the company’s ongoing strategy,” Anadarko said. Combined with the earlier Phase 1 Canadian divestiture, “Anadarko expects to realize significant operational efficiencies” by selling 76 percent of the fields in its Canadian portfolio, but only 25 percent of the reserves.
“Going forward, our refocused portfolio should deliver better returns on capital and higher sustained growth rates,” Anadarko’s Hackett said.
The Phase 2 Canadian package essentially completes Anadarko’s North American property divestiture program for 2004, a major component of an ongoing restructuring that has included employee layoffs and office closures in Texas.
Canadian and U.S. property sales were expected to reduce Anadarko’s reserve base by 15 percent and its production by 25 percent, but the company has said the move would create a stronger foundation on which to grow the company.
Anadarko has said its new strategy largely entails using profits from proven “foundation assets” onshore U.S. and Canada to fuel “growth platforms” in deepwater Gulf of Mexico, Algeria and Qatar.
Anadarko also has entered the liquefied natural gas business. In August, the company announced that it was acquiring Canada’s Access Northeast Energy and its rights to build an LNG receiving terminal on the coast of Nova Scotia.
That deal would provide Anadarko with a home for its own future overseas natural gas production from Algeria and Qatar, while keeping the company on the leading edge of one of the fastest-growing segments in industry.
