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ExxonMobil stakes LNG claim Bid for Canadian producer Celtic Exploration provides resource base for entry into LNG export race; Celtic assets include liquids Gary Park For Petroleum News
It’s close to a quarter century since ExxonMobil or its sister company Imperial Oil or Exxon’s predecessor company Mobil last made a corporate buying trip in Canada — until Oct. 17 that is.
Canadian affiliates of ExxonMobil, including wholly owned ExxonMobil Canada, launched a C$3.1 billion cash, stock and debt offer for senior oil and natural gas producer Celtic Exploration, taking a giant step into the Montney and Duvernay resource plays of northern Alberta and British Columbia.
The acquisition comes hard on the heels of ExxonMobil’s C$2 billion purchase of Denbury Resources’ Bakken assets in North Dakota.
The Canadian transaction includes 545,000 net acres of liquids-rich Montney shale and 104,000 net acres in the highly touted Duvernay shale.
The bid highlights the intense competition among majors to secure a place in Canadian LNG exports, with ExxonMobil sending out a clear signal that it intends to join the contest, even though the company’s Canadian President Andrew Barry suggested the emphasis is on adding “significant liquids-rich resources to our existing North American unconventional portfolio.
“Our financial and technical strength will enable us to maximize resource value by leveraging the experience of ExxonMobil subsidiary XTO Energy, a leading U.S. oil and natural gas producer which has expertise in developing tight gas, shale oil and coalbed methane.”
Although Barry made no reference to LNG, that’s where the big players are concentrating much of their efforts.
Major players The list is considerable, including Royal Dutch Shell, BG Group, Apache, Encana and EOG Resources, with a host of Asian companies filling minority positions.
The only uncertainty hangs over the Canadian government’s refusal to approve the takeover of Progress Energy Resources by Petronas, giving the Malaysian giant full control over a joint venture by the two companies who have been working on a LNG feasibility study over the past year.
The fact that the Celtic deal is being spearheaded by ExxonMobil rather than Imperial, which it owns 69.6 percent of, points to a wider LNG strategy by ExxonMobil rather than narrow thoughts of a single LNG project.
Chris Theal, president of energy hedge fund Kootenay Capital Management, said the deal is “definitely (ExxonMobil’s) scale entry into Canada, integrating into an export platform. The LNG business in Canada is ultimately going to be controlled by the majors.”
Next step likely shale base ExxonMobil’s next step is likely to involve building on its shale resource base, which only five months ago was confined in Canada to Imperial’s dry-gas Horn River basin in British Columbia.
But there is a feeling among some analysts that ExxonMobil will take its customary measured approach to LNG in Western Canada, sizing up the risks such as pipeline costs, environmental challenges and First Nations issues.
Regardless of that, adding the Montney and Duvernay properties gives ExxonMobil access to promising liquids production to improve the economics of the natural gas production.
The LNG angle will become clearer if ExxonMobil makes any moves to lock up land at the British Columbia ports of Prince Rupert or Kitimat for a tanker and terminal site.
Theal suggested it might even make sense for ExxonMobil to do a deal with Encana, which is seeking a partner for its 30 percent stake in the Apache-operated Kitimat LNG project.
He predicted ExxonMobil could become owner and operator of the Kitimat terminal and that would be quickly followed by a “long-term supply purchases and sales agreement.”
Celtic assets Otherwise, the Celtic deal bolsters the growing reputation of natural gas condensate as liquid gold among Western Canadian gas producers.
Celtic’s 450,000 acres in the Resthaven Montney area of western Alberta, which has an estimated 13 trillion cubic feet of recoverable gas, could also supply the LNG export projects being studied by ExxonMobil and others, said Raymond James analyst Luc Mageau.
“Celtic’s assets are strategically located,” he said in a note, suggesting they could see major companies compete with national oil companies in the race to export LNG from the British Columbia coast to Asia.
Celtic, launched 10 years ago, was one of the front-runners in the emerging Duvernay play, which attracted a major rush to secure exploration rights last year, with some observers speculating that it could rival the Eagle Ford of Texas.
But Eric Nuttall, portfolio manager for Sprott Energy Fund, said the capital requirements needed to develop Celtic’s prospects, with wells costing C$10 million-C$20 million, were beyond the company’s cash flow.
Alberta’s oil sands sector is driving most of the demand for condensate, which is mainly a mixture of pentanes and pentanes plus and is used to dilute bitumen for pipelining. Condensate is also used by refineries as a blend for gasoline and as petrochemical feedstock.
Celtic’s current production from the Montney and Duvernay lands is 72 million cubic feet per day of natural gas and 4,000 barrels per day of crude, condensate and NGLs.
Heather Christie-Brown, president of Angle Energy, told an investor conference in September that condensate is better than oil, showing that the condensate price has been 103 percent of WTI so far this year, compared with butane at 67 percent, propane at 30 percent and ethane at 6 percent.
Celtic Chief Executive Officer David Wilson, in a series of presentations this year, has claimed strong condensate production from the Duvernay and Montney formations, which he said translates into a 2 percent royalty after recovering some of the Alberta government’s gas cost allowance.
He said that Celtic’s Kaybob Duvernay play yields about 100 barrels per 1 million cubic feet of gas (75 percent condensate) and 45-50 barrels per 1 million cubic feet of gas in the Resthaven Montney area (79 percent condensate), rising to 70 barrels if deep cut facilities are installed.
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