Energy Ink

Connacher Oil and Gas courts overseas partner

JV talks ongoing with potential foreign bidders for Algar expansion

November 05, 2011

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Connacher Great Divide Pod 1 (Dec. 2009) Photo: Connacher Oil and Gas Ltd.

Connacher Oil and Gas Ltd. is in close talks with a number of potential partners from “somewhere outside of Canada” to develop its non-producing Great Divide oil sands properties, chief executive Dick Gusella says. “We have serious players at the table. We’re encouraged by what’s going on,” he said Friday, declining to discuss specifics.

The Calgary firm engaged Rothschild Group last August as a financial adviser to find a partner for a proposed 24,000 barrel per day expansion at its Algar steam assisted gravity drainage project in northeastern Alberta. An application for the expansion, which would boost production from 20,000 to 44,000 bpd is before the Energy Resources Conservation Board. Approval is expected before the end of the year.

Connacher reports third-quarter results Nov. 10. It was dogged by limited steam capacity at its Great Divide property through the second-quarter, forcing officials to cut production guidance for 2011 by 11 per cent. It finished the quarter carrying $848 million of net debt with daily production of 14.7 million barrels of oil equivalents.

A joint venture could see Connacher sell down a portion of its existing operations, from which it has produced and sold more than 8 million barrels of bitumen since startup in 2007. In an interview, Gusella noted a joint venture would allow the company to raise cash outside of capital markets, which he said “haven’t been exceedingly kind to us because we had to finance a good part of [that growth] with long-term debt.”

Connacher is one of several Calgary firms actively seeking joint venture opportunities – others include Cenovus Energy Inc., Encana Corp., and perhaps Talisman Energy Inc. – at a time when foreign companies have shown they are willing to pay a premium for western Canadian energy assets. Since June, 14 transactions – not all of them involving overseas partners – have been announced totaling $3.4 billion, according to Peters & Co. Although 60 per cent of the 47 deals tracked by the Calgary brokerage this year in the Western Canadian Sedimentary Basin have involved oil-weighted transactions, natural gas assets have brought out the bigger spenders.

Shareholders of Calgary-based Daylight Energy Ltd. will vote Dec. 5 on a buyout offer from state-backed Sinopec. The Chinese refining and petrochemical giant offered $2.2 billion for the natural gas producer early last month. Including debt, the transaction is valued at $3 billion. Cnooc Ltd., the country’s largest offshore oil player, bought bankrupt oil sands operator Opti Canada Inc. last summer for $2.1 billion.

It’s not just China. KOGAS plans to invest $565 million over the next three years to gain a 50 per cent interest in British Columbia gas properties owned by Encana Corp., who is still courting interest in its Cutbank Ridge assets after a $5.4 billion deal with PetroChina Ltd. fell apart this summer. Malaysia’s state-owned oil firm, Petronas, also spent in excess of $1-billion this year for a working interest in shale gas properties owned by Progress Energy Resources Corp., and India, too, is sniffing around. A delegation that included the state-run Oil and Natural Gas Corporation and S. Sundareshan, the Indian petroleum secretary, toured the oil sands last winter.

At Connacher, Gusella said his company’s proved and probable bitumen reserves of roughly 180 million and 320 million barrels, respectively, “has caught peoples’ attention, especially those that aren’t necessarily in the space at this point in time, because they can look at getting into something that’s already proven [and] works.”

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