The board of Canadian oil and natural gas company EnCana Corp. has approved a proposal to split along distinct business lines—oil and gas—to create two Calgary-based energy firms.
In other recent company news:
- In what could be the biggest takeover in Australian resources history, UK-based BG Group has made a $13 billion (Aus.) bid for major oil, gas, and electric power group Origin Energy Ltd., Sydney.
- Perth-based Arc Energy Ltd. is to merge with Australian Worldwide Exploration, Sydney, to form an entity with a market capitalization exceeding $2 billion (Aus). The new company will have a portfolio of interests on and offshore holding proved and probable reserves of more than 78 million boe.
- Stone Energy Corp. will acquire and then merge with Bois d’Arc Energy Inc. of Houston, in a cash and stock deal valued at $1.65 billion, the Lafayette, La.-based independent reported. Including debt, the companies value the deal at $1.8 billion.
- Total SA will pay $480 million (Can.) for Synenco Energy Inc. to acquire a 60% stake in and operatorship of the Northern Lights Canadian heavy oil project in Alberta’s Athabasca region.
EnCana forms IOCo, GasCo
EnCana’s split will create a publicly traded, fully integrated oil company, with a working name of IntegratedOilCo (IOCo), which will focus on EnCana’s Canadian oil sands assets and refinery interests in the US, underpinned by an established gas and oil production base in Alberta and Saskatchewan, the company said. IOCo assets, which will encompass EnCana’s Integrated Oil Division and Canadian Plains Division, represent about one third of EnCana’s current production and proved reserves. The permanent name of IOCo will be determined before the transaction closes.
The other company, with a working name of GasCo, will encompass EnCana’s Canadian Foothills Division, USA Division, Offshore and International Division, and midstream assets “to form a pure-play gas company aimed at growing existing high-potential resource plays in Canada and the US,” the company said. GasCo will represent about two thirds of EnCana’s current production and proved reserves. It is expected that GasCo will retain the EnCana Corp. moniker.
“This transaction is designed to enhance long-term value for EnCana shareholders by creating two highly sustainable, independent entities, each with an ability to pursue and achieve greater success by employing operational strategies best suited to its unique assets and business plans,” the company said.
EnCana shareholders are to receive one share in each of IOCo and GasCo for each share of EnCana held. The split is expected to be completed in early 2009.
IOCo’s assets
IOCo’s asset base will include EnCana’s two producing upstream Alberta oil sands areas—Foster Creek and Christina Lake—and two refineries at Wood River, Ill., and Borger, Tex.
Upstream, construction is under way to increase production capacity more than 200% to an estimated average of about 110,000 net b/d of oil by 2012. Current production is about 30,000 net b/d.
In October 2006, EnCana announced it had entered into an agreement with ConocoPhillips to create an integrated oil business. At that time, independently determined best estimates of recoverable bitumen for Foster Creek and Christina Lake were disclosed at more than 6.5 billion bbl and more than 2.5 billion bbl for Borealis, which is not part of the joint venture with ConocoPhillips.
“As a result of today’s announcement, the greater focus on the in-situ oil sands assets of IOCo and given that IOCo will have all of its upstream operations in Western Canada, it is anticipated that EnCana will be reviewing the need to report the in-situ resources and other assets to be held by IOCo under the standards required by Canadian securities regulatory authorities,” the company said.
“Over the next decade, IOCo’s target as part of the integrated oil sands joint venture with ConocoPhillips is to increase gross upstream bitumen production from Foster Creek and Christina Lake to 400,000 b/d (200,000 b/d net to IOCo) and downstream refining capacity to about 510,000 b/d (255,000 b/d net to IOCo),” the company said.
IOCo’s well-established shallow-gas resource plays in Alberta “are capable of providing strong cash flow to help grow production from its high-quality oil sands resources,” the company said.
IOCo’s designated assets were producing about 100,000 b/d of oil and natural gas liquids and about 925 MMcfd of gas, while the refinery assets were processing about 225,000 b/d of net oil.
GasCo assets
Separately, GasCo is expected to become the second-largest gas producer in North America, the company said. The company will hold plays in key basins in Alberta, British Columbia, Wyoming, Colorado, Texas, Louisiana, and off Nova Scotia.
GasCo will hold the company’s portfolio of gas resource plays: coalbed methane and Bighorn in Alberta, Cutbank Ridge and Greater Sierra in British Columbia, Jonah in Wyoming, Piceance in Colorado, and Fort Worth and East Texas plays in Texas.
In addition to these established plays, operating teams recently achieved some promising exploration results in a number of North American shale plays, such as Horn River in British Columbia and the Haynesville shale in Louisiana, plus the Mannville CBM play in central Alberta, the company said.
GasCo also will hold EnCana’s remaining international interests and midstream assets. It will target a production growth rate of 7-9%/year, the company said.
EnCana, which has an enterprise value of about $75 billion, employs about 6,500 people, 500 of whom work in Calgary. The company was formed in 2002 by a merger between PanCanadian Energy Corp. and Alberta Energy Co.
BG to buy Origin
BG offered to acquire all shares in Origin at a cash price of $14.70 (Aus.)/share, which is a 40% premium on the previous closing price of $10.47/share. The offer values the Australian integrated energy entity at just under $13 billion. Just prior to the bid, Origin had a market capitalization of $9.2 billion.
Origin acknowledged the bid, but said further discussions must take place that may or may not lead to an agreed transaction. The bid also is subject to approvals from shareholders, Australia’s ACCC, and Foreign Investment Review Board.
The BG bid is second in the energy resources industry only to Shell’s ultimately failed attempt to take over Woodside Petroleum in 2001 for $10 billion.
Origin is Australia’s second largest energy retailer, with an extensive portfolio of gas-fired and renewable electric power plants, gas transmission pipelines, and shares in onshore and offshore gas production—notably Bass basin in Tasmania and Otway basin in Victoria. It also has some 2,570 petajoules of 2P coal seam methane (CSM) reserves in southeast Queensland.
In New Zealand, Origin controls electricity retailer Contact Energy, which supplies 27% of New Zealand’s electricity needs.
Supporting its interest in Australian CSM, BG Group also is securing a 9.9% share in Brisbane-based Queensland Gas Co. (QGC) and a 20% stake in QGC’s CSM acreage in the Surat-Bowen basin of southeast Queensland.
BG and QGC plan to jointly develop a 3-4 million tonne/year LNG plant on Curtis Island near Gladstone based on CSM reserves. The plan is to bring gas into Gladstone via a 380 km pipeline to feed the $8 billion plant initially flagged at having one train, but with potential to expand to three trains.
BG may also invest in Santos’ proposed CSM-fed LNG plant in Gladstone. It is touted as a potential predator for Santos once the 15% shareholding cap is removed later this year. However, if BG acquires Origin, the Australian Competition and Consumer Commission (ACCC) won’t allow it to move on Santos as well.
Arc, AWE merger
There also will be the creation of a new publicly listed exploration company called Buru Energy Ltd. that will hold Arc’s Canning basin onshore exploration and production assets in Western Australia. AWE will hold 15% of Buru through Arc.
The merger is subject to approval by Arc shareholders and various court approvals.
The combined portfolio will contain AWE’s share of the Tui oil field off New Zealand, the Yolla field in the Bass basin of Tasmania, and the Casino gas field in the Otway basin off western Victoria as well as Arc’s onshore Perth basin oil and gas fields. Both companies already had interests in the offshore Perth basin Cliff Head oil field.
AWE’s managing director Bruce Wood will remain in that position within the merged entity while Arc’s managing director Eric Streitberg will be invited to join the AWE board as a nonexecutive director. Streitberg also will become chairman of the new Buru Energy.
The timetable for the transaction began with the signing of the merger implementation agreement on Apr. 24 and will lead through various court hearings and approvals to a final implementation date scheduled for mid-August.
Stone, Bois d’Arc merge
Bois d’Arc Energy is a 49% subsidiary of Comstock Resources Inc., Frisco, Tex., which has entered into a stockholder agreement to vote in favor of the deal.
Stone said the acquisition and merger will create one of the largest oil and gas companies in the US, with operations focused mainly in the Gulf of Mexico.
When the deal closes, expected in the third quarter, Stone expects to produce about 300 MMcfd of gas equivalent and to have more than 700 bcf of gas equivalent in proved reserves.
Total, Northern Lights
Northern Lights, which is 100 km northeast of Fort McMurray, is estimated to hold 1.08 billion bbl of bitumen that would be recovered using mining technologies.
Total will work with China Petroleum & Chemical Corp. (Sinopec), which holds the remaining 40% stake in Northern Lights.
“An application for the mining development of the Northern Lights project was submitted to the Alberta authorities in mid-2006 and is being reviewed,” Total said. The added asset will strengthen Total’s presence in the Athabasca region, the company said.
Total spokeswoman Patricia Marie told OGJ that the group was considering upgrading the bitumen recovered from its three fields in Canada—Surmont, Joslyn, and now, Northern Lights—using a single upgrader. It currently has an upgrader project planned for Joslyn, but could consider drawing a maximum of synergies from the three fields, which lie near each other.
