Wednesday, March 9, 2011

Light oil fever continues in Canada.. Whitecap Resources acquires light oil focused-Spry Energy for $223 million

Whitecap Resources agreed to acquire Spry Energy Ltd, an oil weighted company, for total consideration of C$223 million including Spry’s net debt of C$36 million. Through the Transaction, Whitecap is acquiring operated, high working interest light oil assets located pre-dominantly in the Pembina area of west central Alberta focused in the Cardium formation, and very complementary to Whitecap’s existing operations in Pembina including an extensive development inventory of 52 gross locations.

The Transaction has the following characteristics:
Current production - 2,600 boe/d (71% light oil and NGLs)
Proved reserves - 5,832 mboe (71% light oil and NGLs)
Proved plus probable reserves - 9,930 mboe (70% light oil and NGLs)
Proved plus probable RLI - 10.5 years
Annualized cash flow - C$50 million
Operating netback - C$48/boe

Net of undeveloped land value of C$11.5 million (internally estimated), the associated transaction metrics are as follows:
Current production - C$81,300/boe/d
Proved reserves - C$36.26/boe
Proved plus probable reserves - C$21.29/boe
Proved plus probable reserves recycle ratio - 2.3x

The Transaction represents a continuation of Whitecap’s strategy of becoming a premier oil weighted intermediate producer through a combination of organic growth and accretive transactions that are oil focused, with high netbacks and provide significant Company operated drilling upside.

International Companies’ affinity towards Canadian shale is aggressive!! Sasol acquires additional Montney package from Talisman for C$1.05 billion

South Africa's largest petrochemical company, Sasol signed a second agreement with Talisman Energy to acquire a 50% stake in their Cypress A shale gas asset located in the Montney basin of British Columbia, for a total consideration of C$1,050 million. Consistent with the recent Farrell Creek shale gas acquisition, announced in December 2010, this second acquisition will see Talisman Energy retain the remaining 50% interest and continue to operate the Cypress A gas asset. Assets included in the transaction cover over 57,000 acres of land and represent an estimated contingent resource of 11.2 TCF. Goldman, Sachs & Co and Jefferies & Company acted as advisors for Talisman on this transaction.

Sasol and Talisman have agreed to conduct a feasibility study on the economic viability of a facility in western Canada to convert natural gas to liquid fuels using Sasol's GTL technology. This could provide a strategic alternative to traditional North American pipeline or liquefied natural gas marketing.

International Companies’ affinity towards Canadian/US shale is aggressive!!
This second Montney JV by Sasol marks the latest investments by international interests on Canada’s shale gas bounty, as the industry explores new markets and non-traditional uses for the huge deposits. Here are the few examples..

  • In February 2011, Encana Corp established a joint venture with PetroChina through the sale of 50% interest in its Cutbank Ridge business assets for C$5.4 billion. The business assets in the JV included the majority of Encana’s Montney, Cadomin and other natural gas assets on a portion of its British Columbia and Alberta lands. Read more:
  • In September 2010, Penn West Energy Trust formed a 50-50 joint venture with Mitsubishi to develop Penn West's shale gas assets in the Cordova Embayment area and certain of its conventional gas assets in the Wildboy area of northeastern British Columbia. Mitsubishi’s total acquisition cost with respect to this JV was approximately C$450 million.
  • In addition to these, CNOOC recently formed back-to-back JVs with Chesapeake for the Eagle Ford and Niobrara shales in the United States.
Recently, Progress Energy and Trident Resources have initiated a sale process with regards to their Montney assets. With the trend of international companies entering North American Shale, who will end up buying these packages? 

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