SOE potential gas buyers SOE will likely eye Canada’s shale plays after oil sands snub: AltaCorp
Courtesy NexenWhile SOEs will no doubt find it very difficult to acquire oil sands companies, conventional oil and gas assets should hold interest for SOEs, says AltaCorp Capital.
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Expect foreign state-owned oil and gas companies to focus on Canada’s shale plays after new federal government investment rules effectively precludes them from buying oil sands companies, according to AltaCorp Capital.
On Friday, the federal government approved CNOOC’s $15.1-bid for Nexen Energy Inc., and Petronas Cariganli Canada’s $5.2-billion acquisition of Progress Energy Resources Corp., but said in future it will only approve new SOE bids in the oil sands “on an exceptional basis.”
The policy may push SOE to seek opportunities elsewhere in Canada’s broad-based hydrocarbons resources.
“We believe the highly intensive capital nature of the Duvernay, Montney, Muskwa/Horn River plays make them the most likely to be the focus of acquisitions in the sector under the revised Investment Canada guidelines,” said AltaCorp analysts in a note to clients.
The latest report by the independent Energy Resources Conservation Board suggests Canada’s shale plays could contain as much as 1 trillion oil equivalent barrels in place, compared to the oil sands’ 1.7 trillion barrels bitumen in place.
These include:
- The Duvernay (P50) estimates at 73 billion bbls of oil/liquids + 443 Tcf gas;
- Muskwa (P50): 129 billion bbls of oil/liquids + 419 Tcf gas (Alberta);
- Montney (P50): 165 billion bbls of oil/liquids + 2,133 Tcf gas (Alberta);
“The +$20 billion in investment proceeds from these transactions will most likely be recycled back into the sector, that combined with ‘new’ take-out speculation, should result in a general improvement in share prices for E&P names, especially over the short-term,” said AltaCorp.
The energy investment firm expects companies such as ARC Resources Ltd., Advantage Oil & Gas Ltd., Birchcliff Energy Ltd., Encana Corp., NuVista Energy Ltd., Painted Pony Petroleum Ltd., Talisman Energy Inc. and Trilogy Energy Corp., to benefit as they hold large unbooked resource upside in the plays.
Meanwhile, oil sands focused companies that were seen as takeover targets are likely to suffer.
“Disappointingly, the Canadian Government singled out the oil sands as an asset class in which it is unlikely that additional foreign takeovers by SOEs would be allowed,” AltaCorp Capital analysts wrote. “While this does not technically rule out the possibility of future acquisitions by SOEs, we suspect this commentary will be enough of a deterrent.”
Companies hurt by the fed’s new policy includes MEG Energy Corp., Athabasa Oil Corp., Sunshine Oilsands Ltd., Connacher Oil & Gas Ltd., BlackPearl Resources Inc. and Southern Pacific Resources Corp.
While SOE can still invest in the oil sands via joint venture deals, the federal government’s new policy has strengthened the hand of rival independent oil companies.
“Given the uncertainty SOEs will face in making acquisitions, this should put IOCs at a competitive advantage in the acquisition market relative to SOEs,” the analysts said.
But the ‘net benefit’ debate is far from over and investors will continue to monitor Industry Canada’s efforts to define the term.
“The Minister of Industry and the Prime Minister both also made it very plain that the government will be re-defining ‘net benefits’ for future policy and any future decisions. We expect that the markets will be very sensitive to any hints and nuance until the government tables a new outline of what constitutes ‘net benefits.’”
https://business.financialpost.com/2012/12/09/soe-will-likely-eye-canadas-shale-plays-after-oil-sands-snub-altacorp/