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U.S. players jettison Canadian assets Eager to cash in value and chase ‘higher growth areas,’ ChevronTexaco and Murphy Oil put Western Canada conventional assets on market Gary Park Petroleum News Calgary Correspondent
It’s not yet a full-fledged retreat, but there is the sound of scampering feet in Calgary as U.S.-based E&P companies pull up stakes in Western Canada’s conventional plays, eager to take advantage of a market hungry for assets.
In the space of two days, ChevronTexaco and Murphy Oil have put at least C$1.5 billion worth of holdings up for sale as they chase higher-growth global opportunities and try to make the most of higher commodity prices at a time when Canada’s income trusts and junior firms are scouring the market for producing properties.
While retaining “frontier” interests in the Arctic, Alberta oil sands and East Coast offshore, the two have decided that the Western Canada sedimentary basin is a diminishing prospect.
That view was echoed in a National Energy Board report Dec. 9, which said natural gas production from the Western Canada sedimentary basin will stay flat for the next two years at about 16 billion cubic feet per day despite record drilling.
A spokeswoman for Chevron Canada Resources, a unit of ChevronTexaco, said the company is putting daily production of 35,000 barrels of oil equivalent up for grabs, representing all of its conventional volumes in the west and one-third of its total Canadian output, or about 4 percent of ChevronTexaco’s global output. The possible price tag for the Canadian properties has been estimated at C$1 billion.
The list includes a key role in the Fort Liard gas play of the lower Northwest Territories, but the spokeswoman insisted to reporters that “it’s definitely not a pullout” from Canada.
Chevron will keep its exploration leases offshore British Columbia, a 20 percent stake in the Athabasca oil sands project, leases in the Beaufort Sea and Mackenzie Delta, and interests in Newfoundland’s Terra Nova and Hibernia oil fields as well as its 28 percent operator position in the stalled Hebron-Ben Nevis project. Murphy inviting offers for conventional properties Murphy announced Dec. 8 it is inviting offers for its conventional oil and natural gas properties in the Western Canada sedimentary basin — a deal that could fetch upwards of C$500 million.
On the heels of Marathon Oil, which bailed out of the region in August by offloading upstream interests to Husky Energy and EOG Resources for US$588 million, Murphy has decided there are better opportunities elsewhere, notably a recent oil find in Malaysia.
The properties on the block produce 20,000 barrels of oil equivalent per day from proved reserves of 40 million barrels equivalent of heavy oil, light oil and natural gas.
Given prolonged high commodity prices, analysts have valued the package at C$500 million to an estimate of C$650 million by Brian Prokop, with Peters & Co., who said the hunger among energy trusts and junior producers could raise the bidding.
A sale is expected to be completed by mid-2004 and could involve a trust spinning off some of the holdings to juniors.
Murphy president and chief executive officer Claiborne Deming said in a statement that “now is the right time” for his company to monetize many of its assets in Western Canada and pursue plays in “higher growth areas.”
The El Dorado, Ark.-based company will retain its 5 percent holding in the giant Syncrude Canada oil sands consortium and stay active off Canada’s East Coast, where it has stakes in the two producing oil fields — 6.5 percent of Hibernia and 12 percent of Terra Nova. Ladyfern success and disappointment One of the biggest successes and biggest disappointments for Murphy was its discovery of British Columbia’s Ladyfern gas field four years ago, with one well testing initially at 100 million cubic feet per day, putting it among the top 10 onshore discoveries in Canadian history.
But competition among the owners to exploit the play dragged the field from 665 million cubic feet per day in spring 2002 to less than 100 million currently — a decline that Harvey Doerr, president of Murphy’s Canadian unit, described as “value destruction.”
He said disagreement by the companies over how to exploit Ladyfern resulted in an excessive number of wells being drilled and the field being overcapitalized.
Instead of windfall profits to the companies, the only real beneficiaries were governments because of royalties and taxes that were raked in during a compressed period.
Doerr told the Financial Post that there is still an opportunity to explore in the Ladyfern region, but Murphy prefers to redeploy the money and assets it has tied up in Western Canada.
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