Perpetual assets off-loaded for ‘nominal dollars’
Foreign company buys property in hopes natural gas prices rebound
Calgary-based Perpetual Energy Inc. is shedding natural gas assets hit by low prices and high costs — representing a third of its production capacity — in a deal with a private buyer for “virtually no” funds.
The transaction involves more than 2,200 shallow gas wells and other facilities across eastern Alberta with production capacity of 35.5 million cubic feet equivalent per day and annual operating costs of $35 million to $45 million.
According to Perpetual, the buyer is a private company from outside Canada and asked to remain anonymous as a condition of the deal. Sue Riddell Rose, Perpetual’s president and chief executive, said the assets involved in the transaction are a major drain on the company because all of the cash they generate is swallowed up by municipal taxes.
“We rid ourselves of what has become a negative cash flow property for a long time, not just with the recent collapse in the commodity price,” said Riddell Rose, who has offered to donate Perpetual’s assets to municipalities to cope with high tax bills.
According to Riddell Rose, the buyer wants the distressed assets in part because it believes natural gas prices will improve. Among other reasons for the deal, which involves “virtually no monetary proceeds,” the buyer has more funds available to spend in the short term to improve production and potentially generate cash flow, she said.
Riddell Rose has been a vocal critic of Alberta’s property tax regime, arguing the assessed values of her company’s oil and gas assets far outstrip their actual worth.
She said the deal announced Tuesday highlights this disparity.
“The value that the municipal tax system assigns for the assessment is hundreds of times higher than what this transaction price was, which was literally nominal dollars,” she said.
In its deal with the private buyer, Perpetual is off-loading assets that account for about 15 per cent of its reserves and more than 40 per cent of its production capacity, cutting total production from 13,000 barrels of oil equivalent per day to 7,500.