Centrica and QPI buy Suncor gas assets for C$1 billion
The Canadian company is to concentrate on its other profitable assets
Centrica and Qatar Petroleum International (QPI), have bought conventional natural gas and crude oil assets from Canada’s Suncor Energy for C$1 billion ($980 million).
The deal includes 1 million acres of undeveloped land and some of Suncor’s existing infrastructure in the Western Canadian Sedimentary basin in Alberta, northeast British Columbia and southern Saskatchewan. It is also located close to some of Centrica’s existing gas infrastructure, such as the Watelet gas plant, near Edmonton. Centrica said this will help to cut development costs.
Excluded are the majority of Suncor’s unconventional natural gas assets in British Columbia’s Montney play and its unconventional oil assets at Wilson Creek, Alberta.
The acquisition will be made through CQ Energy Canada Partnership, owned by Direct Energy Resources Partnership (60%), a subsidiary of Centrica and QPI Energy Canada (40%), the Canadian arm of QPI.
The deal is subject to regulatory approval but is expected to close in the third quarter of this year.
The acreage contains reserves of around 978 billion cubic feet equivalent (cfe) of gas and oil, most of which is natural gas. Daily production capacity will be around 250 million cfe a day, around 15 million barrels of oil equivalent (boe) per year, Centrica said. Suncor said estimated production from these assets in 2013 was around 42,000 boe per day. Around 90% of this output was natural gas. There is potential for output to be ramped up, Centrica said, using horizontal drilling and multi-stage fracturing.
Centrica will operate the assets but they will be jointly developed with QPI as part of the joint venture agreement both companies signed. In December 2011 Centrica signed a memorandum of understanding with QPI to cooperate in energy-related investments including new and existing projects in upstream oil, gas and liquefied natural gas (LNG). Centrica and Qatar also signed a three-year LNG supply contract to provide the UK utility company with 2.4 million tonnes of LNG per year.
Steve Williams, Suncor’s chief executive, said the company is streamlining its assets to concentrate on profitable ones. "We will continuously review and refine our portfolio of assets to ensure we are investing in projects that deliver profitable growth and strong returns for our shareholders," Williams said.
The Canadian oil-sands producer has been rethinking its strategy as the North American energy supply mix has shifted to liquids-rich unconventional plays, such as the Bakken and Eagle Ford.
Suncor reported a net loss of C$562 million in the fourth quarter of 2012. Williams blamed a surge of light, sweet oil from the US shale basins for a collapse in Canadian oil prices, which are trading at record discounts to WTI. Suncor's slate of bitumen and synthetic blends fetched $77.37 a barrel in the fourth quarter of 2012, significantly down on the $98.02/b it booked in same quarter in 2011.
Centrica signed a 20-year LNG supply deal with US independent Cheniere in March. As part of the deal, Centrica will buy 89 billion cubic feet per year (cf/y) of LNG from the Sabine Pass plant in Louisiana to supply the UK market. The UK faces a looming electricity shortfall in the next few years as existing coal power plants are shut down. A combination of the global financial crisis, tough environmental targets for reducing carbon emissions and the closure of ageing power stations are all expected to tighten supply and may lead to higher electricity prices for consumers. The UK government wants to focus on new gas-fired power stations, renewable energy and nuclear power to make up the shortfall
Sam Laidlaw, Centrica chief executive, said the deal will double the company’s North American reserves to 3 trillion cfe and boost its North American oil and gas output.
In a note Deutsche Bank said the deal would increase Centrica’s upstream production by around 12%, from around 70 million boe per year, yet the bank was “unexcited by the new strategy” and that another decision to invest in North American natural gas would be no surprise to investors.
“We believe that the company should remain wary of political risks around its UK energy retail customer base,” Deutsche Bank said. “We do not expect UK politicians to give the group much credit for taking capital to invest in Canadian gas, rather than new UK nuclear or renewables generation.”