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British big on Canada El Paso purchase ‘right in the sweet spot’ of BG Group strategy, says CEO; confident Western Canada basin can support drilling for ‘many years’ Gary Park Petroleum News Calgary Correspondent
The shifting fortunes of major international players in Canada were reflected in the Feb. 16 deal by British-based BG Group to pay C$455 million for the Western Canadian assets of El Paso.
Formerly British Gas, BG, with interests in 20 countries, has returned to Canada after a decade-long hiatus, certain that the Western Canada sedimentary basin has plenty of potential to meet the U.S. appetite for natural gas.
The acquisition is a key piece in BG’s strategy to invest in the North American gas market as it returns to exploration and production on the continent.
In 1994, it sold a 53 percent stake in Calgary-based Bow Valley Energy to Talisman Energy, which paid C$1.8 billion for all of Bow Valley.
That deal came a year after the C$1.2 billion sale by British Gas of Consumers Gas, Canada’s largest gas distribution unit, to Enbridge. British Gas privatized in 1998 Those divestitures flowed from the 1998 privatization of British Gas, which was forced at the time to reduce debt and strengthen its British holdings.
In 1997, the company was divided into two entities — BG and Centrica, which bought Enbridge’s retail energy services business for C$1 billion two years ago.
Over the past couple of years, BG has signed contracts to accept foreign shipments of liquefied natural gas at U.S. terminals by acquiring a large LNG facility in Louisiana, spent US$127 million to buy capacity and contracts at the Elba Island terminal in Georgia and plans to open a terminal in Rhode Island by 2005.
Martin Houston, president of BG’s North American division, said gas demand is surging across North America at a time production is shrinking, so BG is eager to dig out other buying opportunities in Canada.
“Gas flows across the border,” he said. “The North American gas market is one and the same to me.”
He said the El Paso properties, covering 725 square miles in Alberta and British Columbia, of which 90 percent is undeveloped, are “right in the sweet spot of our group strategy. We bought (El Paso Oil and Gas Canada) for its upside and its growth potential.”
The purchase price includes 132 billion cubic feet of gas equivalent in proved reserves, about 84 percent of them natural gas, with production of 80 million cubic feet per day of gas and 1,100 barrels per day of oil by the end of 2003. Since then the gas volumes have grown to 90 million cubic feet.
The package also includes valuable seismic surveys and tax pools that would allow BG to reduce future taxes. BG sees many drilling opportunities What BG paid was close to the net asset value of C$430 million that Tristone Capital placed on the package, but was seen by some analysts as a premium price.
For all the talk of declining prospects in the Western Canada basin, Houston said the El Paso land gives BG “enough opportunities to support a drilling campaign for many years.
“The very large position of undeveloped oil and gas acreage provides significant opportunities for exploration and development.
“We’ve spent two years looking at Canada and we’ve waited very patiently and been very prudent about making our first move,” he said.
Canada might also offer long-term LNG opportunities, although that’s a distant prospect, he said.
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