Canadian junior shuffles assets

By GARY PARK

For Petroleum News

Terra Energy, a junior E&P company based in Calgary, has completed the initial phase of juggling assets in the unconventional Montney shale gas play of British Columbia as it grapples with the bearish trend in gas prices.

It said the first portion of its C$78 million sale of assets in the Monias and Groundbirch plays to an unidentified buyer has wrapped up for a cash consideration of C$22 million, with the proceeds being used to reduce company debt and its credit facility.

Terra said the second phase involves granting the purchaser an option to acquire the remaining 79,000 net acres of Montney rights for C$56 million — a minimum C$20 million in cash — including the company’s Farrell Creek, Altares, Attachie and Hudson areas.

The buyer has also been granted an alternative option to acquire only Terra’s Montney assets in the Attachie area, consisting of almost 20,000 acres for C$20 million in cash. The two options are exercisable on or before March 15.

In addition, Terra has completed or is scheduled to complete various minor asset transactions with various purchasers in the Karr area of Alberta, Steelman area of Saskatchewan and Inga area of British Columbia for about C$2.7 million in cash.

Terra still owns 28,800 net acres in both the Duvernay and Montney formations in the Karr and North Ante Creek areas of Alberta.

The company said its production base will be kept intact as the asset transactions have associated production of only 50 barrels of oil equivalent per day. In addition, Terra will continue to own more than 350,000 net acres of undeveloped land.

But the company has been hit hard, posting a net loss of C$2.13 million in the second quarter, compared with earnings of C$3.42 million a year earlier, and C$6.69 million in the third quarter.

Its second quarter production averaged 5,438 boe per day, down 9.3 percent from the same quarter of 2011.

Terra, whose operations are concentrated in northeastern British Columbia and the Peace River Arch of northwestern Alberta, is keeping a close eye on its capital spending, which will be contingent on a management assessment of the financial state of the company and the current economic climate and its impact on access to capital and debt markets.

Over the second half of 2012 it has given top priority to dealing with the weakness in its balance sheet, noting its 500,000 net acres of undeveloped land make it among the largest holders amongst its peer junior companies.

It said development of its unconventional Montney resource, together with the size and quality of its other oil and gas properties and land holdings, can only be pursued through a significant capital infusion.

As a result, it will seek investment capital to advance or monetize its projects.