Gas could attract attention
PM appeals to Asian investors to develop resources
Ottawa’s approval of two Asian takeovers valued at $20 billion may spark more foreign acquisitions of Canadian natural gas producers while capping state-owned control of Alberta’s oilsands.
Prime Minister Stephen Harper last week approved China-owned CNOOC Ltd.’ s $15.1-billion bid for Nexen Inc. and a $5.2-billion offer for Progress Energy Resources Corp. by Petroliam Nasional Bhd., Malaysia’s state-owned energy company. At the same time, Harper unveiled foreign investment guidelines to prevent future takeovers of oilsands companies by state-owned companies, except under “exceptional circumstances.”
“Canada is open for business but it’s not going to be a garage sale,” said Robert Cooper, an analyst at Haywood Securities Inc. in Calgary. He highlighted Painted Pony Petroleum Ltd. and Tourmaline Oil Corp. as takeover candidates in the gas sector. “If I was a betting man and that’s where you were in the markets, those names will catch a bid.”
Harper, who has appealed to Asian investors to help develop Canada’s resources, didn’t preclude takeovers in the nation’s gas industry from companies controlled by foreign governments. Under the guidelines, the government will strengthen scrutiny of state-owned bids for companies outside the oilsands, assessing the control they would have on the target and its industry.
Oilsands production is controlled by about 15 companies that represent a “huge portion” of the country’s oil industry and 60 per cent of global oil output that’s “not in state hands,” Harper said.
The gas industry won’t face such explicit limits under the new guidelines. With surging Asian demand for natural gas and a narrow window for projects due to competition from the U.S., Australia and the Middle East, foreign buyers must act, said Eric Nuttall, a fund manager at Sprott Asset Management Inc, from Toronto.
“There should be an acceleration, imminently, of merger and acquisition activity,” among gas companies, said Nuttall.
Choosy foreign energy companies will limit the number of Canadian gas producers to get bids, Bushell said. “It’s a short list of buyers and those buyers are very savvy and they’re probably looking at a short list of assets,” he said.
A glut in North American gas output from shale-rock formations caused the price of gas to reach a 10year low in April, prompting energy companies to propose liquefying the gas by cooling it to reduce the volume and ship it by tanker to higher priced markets.
British Columbia’s natural gas is isolated from the main North American markets and closer to the Pacific coast ports of Kitimat and Prince Rupert, making liquefied natural gas exports one of the few options for monetizing the fuel. Petronas is planning an export facility worth $9 billion to $11 billion, joining rivals such as Royal
Dutch Shell PLC and ExxonMobil proposing LNG terminals.
Companies looking for Canadian gas assets and LNG projects may include Chevron Corp., India’s Oil & Natural Gas Corp Ltd. and China Petroleum and Chemical Corp., said Bob Schulz, a business professor at the U of C who specializes in the Canadian oil and gas industry.
“What you’re going to see on the gas side is consortiums,” he said. “Those global companies are going to go incorporate somebody else’s assets to go and make the deal work on the supply side.”
Canada’s oil and gas industry has generated $42.7 billion in merger and acquisition activity this year, according to data compiled by Bloomberg. That has risen from $11.5 billion in 2000, of which Canadian acquirers were responsible for 78 per cent of the transactions.
“The Canadian industry is now seen as being on the global stage,” said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.
“On natural gas there’s an opportunity for Canada, but the window of opportunity is fairly tight because you’re competing with the Middle East, with America and Australia. We need to step through that window fairly quickly.”
Recent Canadian gas transactions include Exxon’s $2.92 billion offer for Celtic Exploration Ltd. Both Progress and Celtic drill in the Montney shale, one of Canada’s biggest proven shale-gas reserves with an estimated 49 trillion cubic feet and far from the main North American markets that are already oversupplied by shale gas from eastern and southern parts of the U.S.