Montney gas, liquids play ramps up

ConocoPhillips latesttobuyin

CALGARY • ConocoPhillips Co. is selling off land in the world’s hottest oil play and buying up assets in Canada amid a flurry of deals in the domestic gas sector and in emerging Canadian energy plays. Houston-based ConocoPhillips announced this week it had sold off multiple land packages in Texas’ extremely active Permian basin for US$250 million and, at the same time, bought 35,000 acres of land in the Montney play in northern Alberta and B.C. for US$120 million.

International oil majors such as BP PLC, Total ASA and Shell PLC have been selling Canadian assets over the past few years given pipeline constraints and higher taxes here, but analysts say ConocoPhillips is preparing for major growth in the Montney and the company sees an opportunity to “buy low.”

“Right now, Permian sales are getting pretty good prices so it’s probably looking like an opportunity to sell high there a little bit and buy low elsewhere and improve your portfolio at the same time,” Brian Youngberg, an energy analyst at Edward Jones, said of the ConocoPhillips deals.

Activity and dealmaking in the Montney, abundant in natural gas and liquids such as butane, propane and pentane, are ramping up.

ARC Energy Research Institute forecasts $30 billion will be spent in conventional and tight oil and gas formations in Canada this year, which is more than twice the $12 billion in investment projected to go into the oilsands, but still well below the peak of $46 billion spent in Canadian conventional oil and gas production in 2014.

ConocoPhillips, which did not respond to a request for comment, is just one of multiple companies striking deals in the Montney and emerging Duvernay and Horn River formations nearby. Several deals have been announced including land sales, assets being put on the block and midstream deals in the Canadian tight oil and gas sector. Imperial Oil Ltd. and majority owner ExxonMobil Corp. have put their Horn River gas properties in the north-western-most corner of B.C. up for sale.

“After careful assessment, Imperial and ExxonMobil Canada have initiated marketing of the Horn River assets,” Imperial spokesperson Jon Harding said in an email. An advertisement announcing the assets are for sale shows bids for the properties — they include 228,000 acres of land, eight producing wells and a gas processing facility — by the end of May.

In addition, Calgary-based Crescent Point Energy Corp. confirmed months of speculation that it had built up a sizable land position in the Duvernay formation, spending roughly $112 million buying up 335,000 acres in the play, with deposits of light oil, natural gas, liquids like butane, propane and pentane.

“It’s a big company play,” AltaCorp Capital analyst Thomas Matthews said of the Duvernay.

“It has the potential to rival any of the large oil plays that we currently have in Western Canada.”

He said the ConocoPhillips and Crescent Point deals are likely examples of big companies “looking for scale” in a specific play, as major producers need large parcels of land to meaningfully increase their production.

Matthews said the flurry of deals in the natural gas space has included producers and pipeline companies.

Other deals announced this week, including gasprocessing arrangements

between Encana Corp. and Keyera Corp. and between

Birchcliff Energy Ltd. and AltaGas Ltd., will allow the producers to drill more wells targeting highly-valued natural gas liquids and associated gas in the Montney and Duvernay.

Similarly, Bloomberg reported Tuesday that Enbridge Inc. has hired the Royal Bank of Canada to sell some of its natural gas gathering and processing assets in Alberta and B.C. and hopes to raise $2 billion from the sale.

The company has previously said it was looking to sell $3 billion in assets this year.

“What we haven’t seen just yet is a corporate M&A transaction,” Matthews said.

“Until we start to see some corporate M&A, then I don’t expect to see a large flood of internationals coming back in. That will be the next catalyst for our sector — a meaningful M&A transaction that shows the valuations have fallen to the point where it would be silly not to transact,” he said.

IT HAS THE POTENTIAL TO RIVAL ANY OF THE LARGE OIL PLAYS.