The Canadian Press, On Tuesday December 14, 2010, 8:37 pm EST
By The Canadian Press
CALGARY - Korea National Oil Corp. has signed a deal to buy a group of Canadian assets from Hunt Oil Co., a privately held U.S. oil and gas company, in an agreement worth at least $525 million.
The deal, announced Tuesday, also contains a mechanism that allows for an additional payment of $25 million if natural gas prices top certain levels over the next two years.
Targeted closing for the acquisition is Jan 31, the company said in a separate announcement detailing its capital budget for 2011.
The Hunt assets include both producing and undeveloped properties in Western Canada with 52.9 million barrels of oil equivalent of proved plus probable reserves.
Production in the third quarter by the acquired assets averaged 11,720 barrels of oil equivalent per day.
The deal also includes land positions in Alberta and access to the Horn River basin in British Columbia.
The purchase, through Korea National's wholly owned subsidiary, Harvest Operations Corp., is the latest in a string of Korean investments in Canada's oil and gas industry.
It was also part of Harvest's $1.4-billion capital expenditure program for 2011 that the company said is intended to boost upstream production and improve downstream operational efficiencies.
"In 2011, our plan is to continue to advance our strategy of building an asset-rich, growth oriented oil and gas company," president and CEO John Zahary said in a news release.
"Our strengthened balanced sheet and support for growth from Korea National Oil Corp. have positioned us well to more than double capital expenditures for 2011."
"We are allocating our spending towards our recent acquisition of Hunt Oil Company's Canadian assets and those projects where the dollars are most effective. This includes our BlackGold project, our downstream debottleneck projects, and our drilling programs in the Red Earth and Hay River areas."
Besides acquisition of the Hunt assets, additional capital expenditures of $450 million are intended to facilitate a winter drilling season where Harvest plans to drill in excess of 200 wells and continue investment in longer term enhanced oil recovery (EOR) activities, including enhanced water injection and polymer flooding.
"We anticipate 2011's upstream production to average approximately 60,000 barrels of oil equivalent per day and full-year operating costs averaging approximately $14 per barrel of oil equivalent."
Some $240 million has be budgeted for the BlackGold oilsands project in 2011 — $190 million to be spent on the construction and design of the BlackGold facility and $50 million on drilling 10 production well pairs and 12 observation wells and other things.
About $190 has been allocated on the company's downstream business, North Atlantic Refining Ltd., including $70 million intended for a planned refinery turnaround, $60 million allotted to refinery debottleneck projects, $50 million for ongoing capital expenditures, and $10 million assigned to retail marketing assets.
Last month, Korea Investment Corp., a state-owned fund manager, made a $100-million investment in privately held oilsands junior Osum Oil Sands Corp..
In March of this year, Korea Gas Corp. entered into a partnership with Encana Corp. (TSX:ECA) to develop two promising northeastern British Columbia shale natural gas plays.
In October of last year, KNOC paid $4.1-billion for Harvest Energy Trust, which had heavy oil assets in western Canada and a refinery in Come by Chance, N.L.
Hunt Oil is based in Dallas, with operations in the United States, Canada, Yemen and Peru.