Exxon Mobil Corp. (XOM)’s largest-ever Canadian acquisition is fueling speculation that domestic companies with assets in Alberta’s shale-gas fields will become takeover targets.
Shares of Artek Exploration Ltd. (RTK), Cequence Energy Ltd. (CQE) and NuVista Energy Ltd. (NVA) all surged yesterday after Exxon agreed to pay $2.86 billion ($2.91 billion) for Celtic Exploration Ltd. (CLT)’s leases in the Duvernay and Montney shale formations that span an area twice the size of Los Angeles. Larger firms such as Tourmaline Oil Corp. (TOU) and Paramount Resources Ltd. (POU) also climbed.
The deal helps “externally verify” the Duvernay formation as being “one of the best liquids-rich plays in Canada,” said Randy Eresman, chief executive officer of Encana Corp. (ECA), Canada’s largest gas producer.
The Duvernay shale, which is soaked in natural gas as well as petroleum liquids such as propane and ethane, which fetch higher prices, may rival the mammoth Eagle Ford formation in south Texas, Eresman said in an interview yesterday in his Calgary office. The Eagle Ford holds the equivalent of 25 billion barrels of crude, according to ITG Investment Research, or enough to supply North American crude demand for 3 years.
“The major oil companies are recognizing that Canada represents an enormous opportunity to build out their portfolios in unconventional” resources such as shale, Gianna Bern, founder of Brookshire Advisory and Research Inc., a Chicago-based risk-management adviser to energy producers, said in an interview yesterday.
In western Canada, drilling rights often are held in large blocks by small companies, making it easier for major international explorers to snap up significant holdings without having to deal with thousands of individual landowners, as they must in U.S. shale regions such as Ohio and Louisiana, said Brook Papau, an analyst at ITG Investment in Calgary.
The C$24.50 a share Exxon will pay amounts to a 35 percent premium to Celtic’s Oct. 16 closing price. With 76 percent of the reserves to be acquired comprised of gas, Exxon is wagering that a cold North American winter and expanding use of gas in place of coal at power plants will lift prices that touched a decade-low in April, said Chris Kettenmann, an analyst at Phoenix Partners Group LP.
Artek rose 23 percent to C$2.98 yesterday in Toronto. It dropped to C$2.90 at market close today after announcing it sold shares to banks and brokerages. Cequence climbed 12 percent yesterday and was little changed today, while NuVista added 6.6 percent, bringing its two-day gains to 20 percent. All three are based in Calgary. Tourmaline added 6.6 percent yesterday and was little changed today while Paramount rose 8 percent over the last two days.
Encana is seeking a partner to develop its Duvernay acreage, one of a handful of joint venture packages the company is marketing. He expects “at least one” deal to close by year’s end, Eresman said.
“This just shows the value embedded in the acreage, not just this deal,” Eric Nuttall of Sprott Asset Management in Toronto said in a telephone interview yesterday.
Exxon is not alone in the shale fields that span parts of Alberta and nearby provinces such as British Columbia and the Yukon. Royal Dutch Shell Plc (RDSA), the world’s third-largest energy company by market value after Exxon and PetroChina, has been prospecting in the Duvernay shale since 2008. Chevron Corp. (CVX) also has holdings there.
Duvernay explorers may face challenges in making the prospect competitive with other North American fields. Duvernay wells cost about C$12 million each to drill, Sveinung Svarte, chief executive officer at Athabasca Oil Corp. (ATH), said in a conference call with analysts Oct. 16. That’s about 36 percent more than the $9 million Continental Resources Corp. said last week it was spending on wells in a new discovery called the South Central Oklahoma Oil Province, or SCOOP.
The cash-and-stock deal with Celtic is the Irving, Texas-based company’s largest in Canada since the 1999 merger of Exxon and Mobil Corp., according to data compiled by Bloomberg.
“The economic and environmental advantages of natural gas are clear - and markets around the world will increasingly seek this cleaner burning source of energy to fuel progress and prosperity,” Andrew Swiger, an Exxon senior vice president said in a speech last month. “With North America’s abundant supplies, natural gas will be a valued contributor to jobs and energy security in Canada, the United States, and around the world.”
Exxon probably is most keen on the Duvernay shale portion of the Celtic transaction, said Nuttall, who oversees C$110 million at Sprott. The U.S. energy explorer is unlikely to attempt to ship any of the gas produced in the Duvernay or Montney areas to Canada’s west coast for export as liquefied natural gas, or LNG, as it would require the construction of a pipeline over mountains at a cost of $1 billion, he said.
Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.
Rig Count Interactive Map by Baker Hughes, an energy services company.
Shale Sheet Fracking, a Youngstown Vindicator blog.
The Ohio Environmental Council, a statewide eco-group based in Columbus.
Earthjustice, a national eco-group.
People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.
Concerned Citizens of Medina County, a grass-roots group.
No Frack Ohio, a Columbus-based grass-roots group.
Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.
Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.
Allegheny Front, environmental public radio for Western Pennsylvania.