Independents beat larger rivals to BP Amoco prize

Canadian controlled independents move in as majors move out

Gary Park

PNA Canadian Correspondent

In a lightning, preemptive acquisition of BP Amoco’s conventional oil assets in Western Canada in August, two Calgary-based independents took a broad brush to the new picture that is starting to dominate Canada’s oil patch.

Canadian Natural Resources and Penn West Petroleum scooped up the assets in a single C$1.6 billion deal — the largest property sale in Canadian history and C$600 million higher than most estimates — while BP Amoco was still setting up a formal bidding process. Canadian Natural forked over C$1.06 billion and Penn West C$540 million.

Industry analysts, also caught off guard by the blockbuster tactic, said other producers were simply caught napping. “It’s brilliant … strategically brilliant,” said David Stenason of Scotia Capital Markets in Montreal.

But some cautioned that the two buyers probably paid a premium to short-circuit the auction process, and the Canadian Bond Rating Agency placed Canadian Natural on its credit watch list suggesting the company should have been using high commodity prices to strengthen its balance sheet rather than engage in a buying binge.

The deal involved about 350 million barrels of light and heavy crude reserves in Alberta and Saskatchewan, including an oil sands lease in northern Alberta. The properties yield 55,300 barrels per day of oil and liquids and 65 million cubic feet per day of gas. BP Amoco announced the sale to turn its attention in Canada to natural gas, gas liquids and petrochemicals.

On a wider front, the transaction captured the rapidly changing shape of Western Canada’s conventional sector, as majors, such as BP Amoco and Shell Canada, unload their depleting reserves and refocus on the long term, including the East Coast, Alberta oil sands and Arctic.

The result is a whole new generation of senior producers, mostly Canadian-controlled independents, led by Alberta Energy Co., PanCanadian Petroleum, Canadian Hunter Exploration, Ranger Oil, Renaissance Energy, Talisman and now a combination of Canadian Natural and Penn West.