City unlikely to show interest in Cenovus block

It’s a good conversation over a tailgate but city officials say there is virtually no chance of its energy exploration company taking over a large portion of Cenovus operations in the region.

This week the oilfield giant announced it would add its Palliser block to a sales offering meant to raise money for takeover and expansion of joint oilsands operations.

Combined with the Suffield block, on offer since the spring, they have a production of about 77,000 barrels of oil equivalent per day from thousands of wells between here and Drumheller.

The City of Medicine Hat hopes to boost its own oil production, but the consensus is the huge range is out of the city’s league.

“It’s absolutely massive,” said Mayor Ted Clugston when presented with the possibility this week.

“In the past the biggest (mineral rights purchase) we would look at would be around $100 million.

“If it was a firesale (perhaps) but there are environmental liabilities; it’s just too big for us.”

Cenovus has said it expects to raise up to $5 billion for most of its conventional oil properties, including in Saskatchewan and Pelican Lake.

Local administrators reserved comment, saying they evaluate all leases for sale in the region as a matter of course.

Over the last year however, the division’s mandate has been to slim operations, reduce liability and exposure to low-priced gas. A growth strategy focuses on oil, but through exploration for new fields, not buying up proven assets to expand operations.

“I expect we’re looking at the (Cenovus) leases, but I don’t think it’s part of our considerations,” said Coun. Bill Cocks, chair of the utility committee, which oversees the energy division.

“You’re going to pay a pretty good dollar to take proven reserves and start operating. We’re looking more at exploration work.”

Even in a superficial analysis the hypothetical purchases are staggering.

Adding the two ranges, and a total of 77,000 barrels of production per day, would boost the city’s oil production by about 5,500 per cent.

A single operator, working only those fields, would sit at No. 20 on the list of largest petroleum producers in Canada.

Other councillors surveyed this week similarly felt the Cenovus portfolio was “beyond our reach.” Clugston said if the sales process results in breaking up the Palliser portfolio, individual wells or smaller portions near existing city operations might be attractive.

Cenovus has said it has attracted good amount of interest and expects to have more to report this fall about potential buyers.

This year the city sold most of its natural gas production wells in Saskatchewan in exchange for nominal cash payment but also to remove about $50 million in long-term abandonment costs from its books.

A growth strategy update this winter stated initial results were “beyond expectations” at the city’s play in west-central Saskatchewan

Petroleum general manager Brad Haynes reports this week that his office is reviewing drill results and additional geotechnical data gathered other the winter.

The plan is to return to drill three more wells this fall.