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Montney letdown multifaceted
Gary Park For Petroleum News
Holders of exploration rights in Western Canada’s Montney oil and gas play couldn’t have asked for a better billboard two months ago when regulators rated the formation as one of North America’s treasure troves, estimating resources at 3,000 trillion cubic feet of gas, 14.5 billion barrels of gas liquids and 1.13 billion barrels of oil (or 4,500 tcf equivalent).
Some said it was just what they needed to attract a swarm of prospective buyers. Only it hasn’t quite worked out that way for a host of reasons.
The big Calgary-based independent Canadian Natural Resources ended a 10-month search for buyers or partners for a quarter of its Montney land holdings by reporting limited and inadequate interest.
The company said Jan. 9 that it received some expressions of interest, but none were of “sufficient interest” to complete a deal for the Graham Kobes package which covers 240,000 acres of the 988,000 acres controlled by CNR and has been estimated by third-party evaluators to hold 6.7 tcf equivalent of contingent resources.
When the process was launched, CNR President Steve Laut said that because the Graham Kobes portion was “somewhat removed from our core Montney asset base, it is prudent to monetize” the property as part of the company’s drive to balance its capital spending.
Financing may be issue Analysts suggested the failure to negotiate a deal reflects the inability of junior companies to secure financing for a big capital project, even though they are the obvious buyers when majors unload assets.
The zone is seen as doubly attractive as a gas source to back LNG export projects and because it is rich in condensates such as propane and butane.
The concern now is whether majors in the Montney will start delaying or shelving their exploration plans, although TD Securities said it expects companies such as ARC Resources, Encana, Tourmaline Oil, Advantage Oil & Gas, Birchcliff Energy and Paramount Resources to continue raising production and reserves.
The Montney is not without hope, given its large-scale transactions such as the takeover of Progress Energy by Malaysia’s Petronas for C$6 billion to underpin its Pacific Northwest LNG project, followed by Petronas’ deal in November to buy Montney lands from Talisman Energy for C$1.5 billion.
Earlier deals saw Encana reach a C$2.9 billion commitment with Japan’s Mitsubishi and ExxonMobil’s C$3.1 billion buyout of Celtic Exploration.
M&A activity down sharply But the sharp decline in merger-and-acquisition activity is another reality, with ATB Financial reporting that oil and gas deals last year hit their lowest level since 2007, with 89 transactions reported at a value of C$8.9 billion, with prices per barrel of oil equivalent production at C$58,769 last year, compared with C$73,400 in 2012 and C$53,271 in 2007.
But analysts said much of the downturn was attributable to limits the Canadian government has imposed on foreign state-owned companies acquiring oil sands assets.
With oil majors unwilling to loosen their purse strings to buy assets in the face of low commodity prices and stern competition from U.S. basins, oil and gas M&As dropped 80 percent last year to US$10.2 billion — considerably more than the TD estimate — compared with US$50 billion in 2012, according to IHS Herold.
Christopher Sheehan, director of M&A research at IHS Herold, told the National Post that a key reason for the downturn was “persistently weak natural gas prices” and the fact that global energy giants piled up US$200 billion in shale and other unconventional resources over the past three years, even though unconventional transactions dropped by more than half last year to US$40 billion.
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