Barrick Gold Corp. takes $500M loss on energy sale
A $400-million investment in the Alberta oil and gas industry five years ago designed to offset skyrocketing fuel costs at its gold mines has turned into a $500-million balance sheet loss for Barrick Gold Corp.
The Toronto-based mining company said Tuesday it will sell its Barrick Energy Inc. subsidiary to Calgary major Canadian Natural Resources Ltd. for $173 million and a roy- alty on future production from certain lands at Nipisi in north central Alberta.
Barrick said it will take a writedown of half a billion dollars on the investment, $90 million of which relates to goodwill.
It calculated that its total consideration for the company is about $455 million, including a $50-million deemed value of the royalty, the $59-million separate sale of assets to privately owned Venturion Oil Ltd. and the $174-million sale of assets announced last month by buyer Whitecap Resources Inc.
Spokesman Andy Lloyd said the Barrick loss relates to the value of the company as carried on the company’s books.
“It’s the price we paid plus capital we had invested in the business,” he said.
“The sale price is lower than the carrying value of the assets on our business so it’s an accounting charge we’ll take in the second quarter.”
Lloyd said the investment worked as a fuel cost hedge for the company for the first few years but higher discounts for western Canadian crude versus New York benchmarks blunted its affect more recently.
The energy company was identified as a non-core asset and put up for sale by Barrick last year.
Barrick entered the Alberta energy business by buying and renaming Cadence Energy Ltd., a company headed by president and chief executive Grant Fagerheim, who has the same position now with Whitecap.
In a separate news release, Canadian Natural said it was attracted to the deal by the strong netbacks and long reserve life of Barrick’s light oil-weighted assets and their fit with existing core areas.
It said it will gain 4,200 barrels per day of light crude oil and natural gas liquids and about 4.4 million cubic feet per day of natural gas.
Although the company is best known for its oilsands and heavy oil production, it is also Canada’s second-largest gas producer.
“We look forward to working together with the staff currently employed by BEI,” said Canadian Natural president Steve Laut in the release.
The transaction is targeted to close next Wednesday.
Canadian Natural expects to produce about 1.1 billion cf/d of gas and about 500,000 bpd of oil and liquids this year while spending capital of about $3 billion.