Oil sands minnow feeds on takeovers

Oil sands start-up Connacher Oil and Gas is wasting no time covering its bases as it moves ahead with plans for a 10,000 barrel per day project in northeastern Alberta.

In back-to-back deals, it launched a bid for a Montana refinery and locked up natural gas production that is key to its oil sands production.

For an undisclosed amount, it has offered to buy Holly Corp’s 8,000 bpd Great Falls refinery to process output from its Great Divide oil sands venture that is scheduled for start-up by late 2006.

Too small to build its own Alberta upgrader and with no facilities due on line in the short term, Connacher identified Holly as an opportunity to “mitigate risk ... and some of the volatility that has emerged in recent times for heavy oil price differentials.”

The Great Divide project, which covers 68,840 acres and holds an estimated 90 million barrels of recoverable bitumen to support a 25-year operating life, is expected to get final regulatory approval in early 2006.

The Great Falls refinery, which Connacher believes is a candidate for expansion, currently handles sour, medium-gravity crude shipped from Alberta by a Koch pipeline.

Putting a second key piece of its puzzle in place, Connacher agreed to buy Luke Energy for C$196.6 million in cash and shares to secure natural gas costs for Great Divide.

The company said conclusion of the Luke transaction will give it combined production of 15.7 million cubic feet per day of gas and 90 bpd of oil, locking in the gas it will need for the oil sands project and leaving some surplus.

The two companies said the Luke properties in central northern Alberta consist of “significant lower-risk shallow natural gas ... with recognized growth potential.”

—Gary Park