RE: Celtic
This acquisition will add significant liquids-rich resources to our existing North American unconventional portfolio
CALGARY • With its $3.1-billion bid for Celtic Exploration Ltd. Wednesday, it looks like Exxon Mobil Corp. is throwing its considerable weight behind Canada’s West Coast LNG export strategy, adding to speculation that there is a race going on between oil majors to consolidate all aspects of the business.
The world’s largest energy company was rumoured to be the unsuccessful suitor of intermediate gas producer Progress Energy Resources Corp. — ultimately scooped up by Malaysia’s Petronas — and on Wednesday moved ahead with what appeared to be its Plan B.
Exxon’s friendly offer for Celtic involves $24.50 a share, plus half a share of a new company that will hold assets not included in the agreement. It gets a position in the Montney and Duvernay shales in British Columbia and Alberta. The cash value represents a 35% premium to Celtic’s share price on Tuesday.
“This acquisition will add significant liquids-rich resources to our existing North American unconventional portfolio,” Andrew Barry, president of ExxonMobil Canada, said in a statement. “Our financial and technical strength will enable us to maximize resource value by leveraging the experience of Exxon Mobil subsidiary XTO Energy, a leading U.S. oil and natural gas producer which has expertise in developing tight gas, shale oil and gas and coal bed methane.”
While there is no mention in the announcement of Exxon’s liquefied natural gas ambitions in Canada, that’s all market players were talking about. The B.C. north coast is turning into the continent’s LNG hotspot because it has deep-water ports, is close to Asia where customers pay higher prices and is underpinned by rich shale gas discoveries in Western Canada.
Royal Dutch Shell PLC is already well-established, with resources, an LNG plant proposal, partners and customers all locked up. Meanwhile, players such as Apache Corp. and its partners, BG Group and others are pushing hard to firm up various aspects of a trans-Pacific LNG business. Petronas is also well-placed as a result of its acquisition of Progress, although it has to clear one final hurdle — Ottawa’s regulatory approval, which is expected by Friday.
The Celtic purchase is Exxon’s largest since the US$34.8-billion takeover of XTO Energy in June 2010. The fact that it’s being led by ExxonMobil Canada, rather than its Canadian affiliate, Imperial Oil Ltd., suggests the deal is part of a bigger LNG picture rather than a one-off to participate in Western Canadian gas. Imperial Oil may elect to participate at a later date.
“This is definitely [Exxon’s] scale entry into Canada, [with a view to] integrating into an export platform,” said Chris Theal, president and CEO of Kootenay Capital Management Corp., an energy hedge fund based in Calgary with a position in Celtic. “The big picture is that the LNG export business in Canada is ultimately going to be controlled by the majors.”
Exxon is replicating Shell’s game plan and will acquire more, said Adam Theriault, who works in special situations sales at United First Partners in New York.
The big picture is that the LNG export business in Canada is ultimately going to be controlled by the majors
Exxon’s next steps will likely involve securing more resource, an LNG plant in either Kitimat or Prince Rupert in B.C. and lining up customers in Asia. Exxon already owns lands in the Horn River basin and has talked about its desire to participate in the LNG business in Western Canada.
The Kitimat LNG project is the most advanced on the B.C. coast, but has yet to secure long-term customers in Asia. With Encana Corp. looking for a partner for some of its gas assets, it would make sense for Exxon to do a deal with Encana involving gas reserves and participation in the Kitimat LNG plant, Mr. Theal said.
“Our call is that Exxon is an owner and operates the Kitimat terminal,” which is owned by Apache, Encana and EOG Resources Inc., he said. “And being a global player, you will see a long-term supply purchase and sale agreement come in right behind that.”