Oil Patch Insider

Welcome to dog days – lots of bark, no bite yet

It can’t be a case of inactivity breeding idle gossip.

So maybe there’s something to the latest prattling in the Canadian oil patch.

At a time when the industry is running on all cylinders, the rumor mill has also been busily grinding.

The liveliest speculation has focused on the prospect of Shell Canada relieving EnCana of its Atlantic Canada miseries and buying the big independent’s Deep Panuke natural gas assets, and the chances of Talisman Energy getting swallowed in a takeover.

Of all the rumors circulating, the one that makes most sense is the prospect of Shell taking over Deep Panuke – a natural fit for Shell, which owns one-third of the producing Sable gas field offshore Nova Scotia, and would welcome the chance of putting a stop to its rapid decline in Sable reserves.

From the outset, Sable has failed to live up to hopes of a 20-year producing life.

In a series of downward revisions, often led by Shell, reserves have been slashed from an original 3.6 trillion cubic feet to 1.35 tcf, while production (all of it exported to New England) has tumbled more than 100 million cubic feet per day from a peak of about 465 million cubic feet per day.

These trends have raised concerns that the field will run out of gas by 2014, 10 years ahead of original hopes.

Drilling has failed to generate more than optimism that the decline will be slowed.

But EnCana’s decision more than two years ago to put its C$1.1 billion Deep Panuke project on hold, while it looked for new gas, possibly a new partner and better economics, opened the door to 950 billion cubic feet of possible new reserves.

As part of its rethinking, EnCana has engaged the Sable partners in talks about sharing infrastructure, although there has been little word this year of progress in that direction.

Not helping matters was EnCana’s loss last month of Marauder Resources East Coast as a junior partner to drill a well this year in the same trend as Deep Panuke as a final shot at shoring up the discovery.

EnCana has insisted it is not ready to walk away from Deep Panuke, but Chief Executive Officer Gwyn Morgan did not rule out an eventual sale last fall when he said that even if the field does come on stream there is no assurance his firm will own the project.

Ian Kilgour, Shell’s vice-president of E&P, stoked the embers recently when he said Shell has discussed “potential synergies” relating to the field’s future development.

Paul McEachern, executive director of the Offshore/Onshore Technologies Association of Nova Scotia, told the Halifax Chronicle-Herald that Deep Panuke would be a “neat fit” with Sable and added it should be no “surprise that it is being shopped around.”

On the takeover front, Talisman shares got a 10 percent lift over a week in late May on the basis of “street noise” that France’s Total might be about to mount a bid for the C$15.6 billion independent with assets in North America, Southeast Asia and the North Sea.

But, among analysts, there were more who scoffed at the Total reports than those who gave weight to them and Talisman itself seemed to put an end to matters May 30 when a spokesman for chief executive officer Jim Buckee said there are no discussions with Total.

Steve Calderwood with Raymond James said a better bet as a suitor would be ConocoPhillips.

Terry Peters with Canaccord Capital might have been the trigger for speculation when he issued a research note May 26 making an argument that Talisman is undervalued when stacked up against its senior peers, such as Nexen, Canadian Natural Resources and EnCana.

He said Talisman represents an attractive company to own, although he has no knowledge that it is in anyone’s sights.

With the pot simmering, it was a chance to bring it to full boil.

Husky Energy and Nexen suddenly found themselves rated as a hot prospects for acquisition by Italy’s ENI and EnCana was said to be under the microscope of Royal Dutch/Shell.

But Peters cautioned that long-term oil and gas price volatility could make any large scale acquisitions unlikely at this time.

BP not taking it to extremes, says Dean

BP spokesman Scott Dean told AdAge.com after the issue surfaced that WPP Group’s MindShare, ad buyer for the giant company, had penned the memo to publications saying those publications had to inform BP in advance of any news, text, or visuals they plan to publish that mention the company – or even a competitor or the industry in general. That’s a pretty broad field.

Dean called the language in the memo unfortunate and regrettable.

“This is not meant to be Draconian or to influence coverage,” says Dean. Still, he indicated the company isn’t backing away from the concept entirely. “We are just asking for a heads-up,” he says. “We never asked to read (stories) in advance.”

The BP policy came in the wake of a similar dictum from MorganStanley, the embattled Wall Street giant, which told publications its ads must be automatically pulled from any edition containing “objectionable editorial coverage.”

But the publishing giant of Wall Street, The Wall Street Journal, didn’t flinch. The Journal has written extensively on the increasingly contentious internal struggles at the investment banking/brokerage firm.

“It would not be a practical condition at The Wall Street Journal,” Publisher Karen Elliott House told AdAge.com. “The ad department has no knowledge of what stories are running in the next morning’s newspaper.”

Aside from that “Chinese wall” built between the ad and news departments at virtually all reputable publications, editors and owners of most news outlets realize that if they don’t play straight with their readers, those readers will disappear and the publication will die.

Private group of investors buys ERA Aviation

EAIG consists of a private group of investors primarily based on the U.S. West Coast.

Under the agreement, which should close in the next 45 to 60 days, EAIG will acquire all of ERA’s current airline operations and will operate under the name Era Aviation Inc. Seacor will retain ownership of the ERA Aviation Center and its associated fixed base aviation services.

“The acquisition will not affect current flights and customers can expect the same superior service during the transition,” ERA said. ERA flights serve Southcentral and Western Alaska, using a combination of deHavilland Dash-8 and Twin Otter aircraft.