Barrick writes down energy assets

Toronto-based mining company Barrick Gold has posted a paper loss of C$500 million for its failed venture into the oil and gas industry.

It has agreed to sell its Barrick Energy to Canadian Natural Resources for C$173 million five years after creating the subsidiary in hopes of offsetting rising fuel costs at its gold mine. The deal also includes a royalty on future production from lands at Nipsi in north-central Alberta.

Barrick Gold said it will take a write-down of about C$500 million in the investment, C$90 million of which relates to goodwill.

It calculated that its total consideration for the company is about C$455 million, including C$50 million deemed value of the royalty, a C$59 million sales of assets to privately owned Venturion Oil and the C$174 million sales of assets announced in June by buyer Whitecap Resources.

A Barrick spokesman said the company’s loss relates to what it paid plus capital invested in the business.

He said the investment worked as a fuel cost hedge for the first few years, but those benefits were blunted because of higher discounts for Western Canadian crude versus New York benchmarks.

Canadian Natural said current production, before royalties, from the working interests it acquired is 4,200 barrels per day of light crude and natural gas liquids and about 4 million cubic feet per day of gas.

The assets include 92,160 net acres of unproved land at Nipsi, which, relying on an independent engineering report, contains 38.6 million barrels of best estimate contingent resource, based on technology under development.

Canadian Natural expects to produce an average 1.1 billion cubic feet per day of gas and about 500,000 bpd of oil and liquids this year.

—Gary Park