Shale Assets Dominate North American Opportunities

Analysis of all opportunities for sale (Assets, JV, Corporate M&A, etc) in North America with deal values above $100 million gives the following results seen in Chart 1. Opportunities related to the Marcellus Shale lead the pack at $7.5 billion worth of assets for sale in the US. Oil sands related projects in Canada come second with $4.5 billion worth of assets for sale.  

Figure 1: Chart of total deal value vs play type/ sub-region. Only deals in the market with deal values above $100 million have been considered for this analysis. Source: Derrick Petroleum ‘Deals in Play’ database.

Clearly, there are a lot of shale related opportunities in North America. Shale related opportunities represent ~52% of all opportunities in North America with the rest split between the conventionals (34.8%) and oil sands (12.5%). Marcellus shale related opportunities dominate at ~23% of all opportunities.

Shales are the hottest play in North America at the moment, and deal activity involving them looks set to dominate the oil and gas industry in North America for some time to come. 

CNOOC to acquire OPTI Canada for $2.1 billion. Nexen gets a healthier and wealthier partner.

CNOOC has agreed to acquire OPTI Canada, for a consideration of approximately US$2.1 billion, subject to regulatory and shareholders approvals. Through this acquisition, CNOOC will own a 35% working interest, with Nexen holding the balance 65% in the four oil sands projects- Long Lake, Kinosis, Leismer, and Cottonwood, located in Alberta.

Source: CNOOC


Acquisition Highlights (OPTI’s interest):

• 195 million barrels of proved reserves
• 534 million barrels of probable reserves
• 1,100 million barrels of contingent resources
• 335 million barrels of prospective resources
• ~10,000 bbl/d bitumen production at Long Lake
• 90,944 net acres owned by OPTI
• Existing Upgrader built and operating at the Long Lake site
• Increases CNOOC’s reserves and production by 5.3% and 1%, respectively

Source: CNOOC

Deal Valuation
It is estimated that the value of Contingent Resources for Long Lake and Kinosis projects to be $415.20 million (at $0.60/BOE). The remaining deal value of $1,660.30 million is ascribed to Proved plus Probable Reserves of Long Lake project ($4.90/BOE or $158,124/Daily BOE).

Note: Although OPTI has reported probable reserves for Kinosis project, it is believed that as the project is not yet developed, the probable reserves are counted under the contingent resources. The contingent resources associated with Leismer and Cottonwood projects are not included for valuation as they are not planned to be developed in the medium term.

CNOOC- the healthier partner for Nexen

Last week, Opti Canada had filed for bankruptcy protection in Alberta as the company ran out of cash to fund its oil sands operations. In this regard, CNOOC’s proposal to acquire OPTI rescues not only OPTI but also Nexen as it has got a wealthier partner for its oil sands assets. Nexen has revealed that it will ramp up the drilling at its Long Lake oil sands project to use the processing plant more effectively.

Source: OPTI Canada

Canadian Oil Sands - resources and related deal activity

Alberta’s oil reserves are located in three main areas: Peace River, Cold Lake, and Athabasca. The Athabasca oil sands area, where OPTI and Nexen own substantial resources, is the richest of the three and has the most concentrated oil sands development.

Canada's oil sands are estimated to hold as much as 175 billion barrels of bitumen (Source: Energy Resources Conservation Board (ERCB)). ERCB reports that oil sands bitumen production is currently around 1.5 million barrels per day and expects the oil sands production to reach 2.7 million barrels per day by 2015. The oil sands projects are believed to have a steady production profile of up to 50 years with no decline.

Eighty percent of all bitumen resources in the Athabasca oil sands region are too deep to mine and hence these bitumen resources have to be recovered using in-situ techniques, such as SAGD. It is estimated that Canadian oil sands resources represent 13% of the world’s total crude oil reserves, ranking second only after Saudi Arabia (Source: Energy Information Administration).

Source: CNOOC

The deal activity with respect to oil sands was completely down since the beginning of 2011. The last major acquisition by the Chinese companies in the oil sands was in April 2010, when Sinopec acquired Syncrude project from ConocoPhillips for $4.65 billion.

The following table shows the oil sands deals since 2005.

Source: CNOOC

The Chinese companies were active in acquiring oil and gas assets past one year. The significant (greater than $1 billion) acquisitions include:

• Sinopec acquiring 40% interest in Repsol's Brazilian business for $7.1 billion
• Sinopec acquiring Syncrude project from ConocoPhillips for $4.65 billion
• CNOOC and Bridas acquiring Pan American Energy from BP for $3.5 billion
• CNOOC acquiring Niobrara shale assets from Chesapeake for $3.5 billion
• Sinopec acquiring Argentina unit of Oxy for $2.45 billion

Petrochina failed to acquire Encana's Montney assets in a $5.4 billion bid made in February 2011. Notably, there were no acquisitions made by the Chinese companies since then.

Prior to this $2.1 billion oil sands deal, CNOOC clinched a back to back Niobrara JV with Chesapeake. The acquisition trend of CNOOC in North America discloses an interesting fact that, CNOOC is interested in acquiring oil assets unlike other Chinese or Asian companies who were/are interested in unconventional gas assets.

Canadian Oil Sands 2011 Raymond James Canadian Energy Conference

•100% of production is fully upgraded light sweet synthetic crude oil
•Furthermore all of production is unhedged, providing providing full exposure to crude oil prices;
•As a result, we are one of the most highly correlated investments toWTI crude oil.

http://docsearch.derrickpetroleum.com/files/12680/COS%202011%20Raymond%20James%20Canadian%20Energy%20Conference.pdf

Canadian Oil Sands 2011 The First East Coast Energy Conference Presentation

http://docsearch.derrickpetroleum.com/pageNav/view1/docId/11043-0000/COS-2011-The-First-East-Coast-Energy-Conference.html