|
Feeding off its confidence Seven Generations Energy snaps up Alberta gas assets for C$1.9 billion, certain the fuel has role in a sustainable energy future GARY PARK For Petroleum News
Calgary-based Seven Generations Energy was launched eight years ago, backed by funding from management and private investors, to pursue the development of a company that would leave its imprint for generations to come.
These days, based on its Iroquois-inspired name, the company might be inclined to believe that it is fast approaching its grand objective of contributing to a sustainable energy future.
For now 7G is moving at warp speed, pouncing on assets that fit its vision of benefitting society and ensuring the environment is preserved over the long haul.
“If we don’t benefit society, surely we shouldn’t exist,” Chief Executive Officer Pat Carlson told the Financial Post.
To pull itself out of the trough that has swallowed many of its peers and rivals, 7G is spending C$1.9 billion to acquire assets held by Paramount Resources in the prolific Montney natural gas region of northwest Alberta - one of its foundation stations through the Kakwa play, along with North Dakota’s Bakken play and an emerging shale gas prospect in the Horn River area of northeastern British Columbia.
Stock offering snapped up Investors apparently like what they see, quickly snapping up a C$650 million stock offering on July 7, to help fund the Paramount purchase.
That response matched other recent large offerings by Suncor Energy and Birchcliff Energy, both of which have made big acquisitions in a weakened market.
As part of its deal - its biggest since going public in late 2014 - 7G will give Paramount a 10 percent stake in the company, allowing it to keep some exposure in the Montney by producing 10,500 barrels of oil equivalent per day, or 20 percent of its current output.
David Taylor, president and portfolio manager at Taylor Asset Management, said the Montney acreage is a logical addition to 7G’s existing operations.
“It basically duplicates their land,” he told the Globe and Mail. “It’s the same rock, the same geology, the same play and the same economics, so everything about it makes sense.
“They’ve said over and over how attracted they are to the assets and they’re a big company now, so they need to drill a lot to fulfill pipeline commitments.” Production will climb 26% Once the deal closes, 7G will see its production climb by 26 percent to 145,000 boe per day and expand its Kakwa land holdings by 40 percent.
“Pretty clearly this is Paramount’s crown jewel,” said Brook Papau, an analyst at RS Energy Group in Calgary. “This was their area of development.”
Carlson said 7G will be able to capitalize on its low-cost drilling and hydraulic fracturing operations over a larger base.
He bases 7G’s strategy on its conclusion that “there is too much gas and too many gas companies some of which will have to fail. We don’t want to be one of them.”
Carlson told the Financial Post that he is embracing the Alberta government’s climate change plan, including its carbon tax, imposed reductions in methane emissions from oil and gas operations and its drive towards green energy.
But he also warns that governments should be wary of any measures that make the petroleum industry less competitive, otherwise oil and gas supplies will come from other sources. Liquids-rich natural gas production Since 2011, and prior to the Paramount transaction, 7G built production of liquids-rich natural gas to 90,000 boe per day, tripling out of only two years ago, prompting National Bank Financial to predict the company’s production and cash flow could be “unrivalled” within two years.
Even at the depths of the commodity price slump, 7G raised C$2.4 billion in equity and C$1.2 billion in debt after going public and boosting its share value by more than 90 percent.
Carlson brushes off those who ask why he is accelerating production in a low price gas world, when he could do better by restraining growth until prices recover, by asking: “Who says prices are coming back? Prices are depressed because of oversupply. How long should I wait?”
He operates to a conviction that achieving zero greenhouse gas emissions is “impractical ... but we should do something and use natural gas instead of more impactful hydrocarbons.” Other share issues 7G’s setup with Paramount is similar to Birchcliff’s June acquisition of Encana natural gas assets, funded by a large share issue that was boosted to C$735 million from an initial C$635 million in response to high demand. That transaction will raise Birchcliff’s output by one-third to 65,000 boe per day.
About the same time, Suncor raised C$2.5 billion to help pay down debt and finance future projects through a sale that attracted investor demand which was double the number of shares available.
However, in the process both financings created some uncertainty about the ability of smaller energy players to raise sizable chunks of money to take advantage of the growing list of troubled natural gas producers who are up for sale in Canada. No guarantee of success Martin King, an analyst at FirstEnergy Capital, said the small, independent and privately owned oil and gas producers now on the auction block have no guarantee of success.
He said there are probably too many of them “who are just simply not going to make it through the cycle, or are going to emerge deeply wounded.”
Two of these being closely watched are Mosaic Energy, which produces about 8,200 boe per day in Alberta and Endurance Energy, majority owned by New York-based Warburg Pincus, which produces about 85 million cubic feet per day of gas from its Sierra field in northeastern British Columbia.
But many of Canada’s largest producers, having both retreated from capital spending and laid off thousands of workers, are starting to accumulate piles of cash giving them the ability to manage debt.
The five largest oil sands producers, including Suncor and Cenovus Energy, have a combined C$8.5 billion in cash and cash equivalents, double the levels seen in the last big downturn in 2009.
While there may be temptations to use some of that money for acquisitions, John Stephenson, chief executive officer of Stephenson & Co. Capital Management, said companies will likely be deterred for now by low commodity prices and their large holdings of undeveloped land.
He said the “appetite for a deal is pretty minimal (with the market) frozen in time.”
| 