National Post (Latest Edition)
The lure of the Montney region
arc resources Ltd’s $2.7-billion bid to buy Seven Generations energy Ltd will create the largest oil and gas producer in Canada’s Montney region, and may re-energize development in one of North America’s top shale plays.
The combined company will have more financial strength to develop its 1.1 million net acres of land in a region that investors and drillers say has so far struggled to meet its full potential.
The deal could also spur further acquisitions in a play that boasts attractive drilling economics and huge resource potential as oil and gas prices tentatively recover.
Arc’s announcement on Wednesday is the latest in a wave of consolidation that has swept the Montney as companies buckled under collapsing oil prices amid the COVID-19 pandemic.
Some investors are betting that u.s. President Joe biden’s decision to suspend oil and gas permitting on federal lands and water could add to the Montney’s appeal.
“The Montney, you could argue, has some of the best economics in the whole of North America,” said Jeremy Mccrea, an analyst with raymond James.
The Montney straddles northeastern british Columbia and northwestern Alberta. It is expected to produce 1.4 million barrels of oil equivalent per day (boepd) this year, according to consultancy Wood Mackenzie, making it the fourth-largest shale play in North America.
In terms of remaining resources, it ranks only behind the Permian and Marcellus in the united States. but the play has struggled to showcase its full potential because of limited pipelines and low oil and gas prices that left producers highly leveraged and unable to invest in drilling, Mccrea added.
deals last year included u.s. oil major Conocophillips purchasing land from Kelt exploration, expanding its existing assets, and Canadian Natural resources Ltd. buying Painted Pony energy, as big producers took advantage of smaller companies’ vulnerability to bolster their positions.
“There’s no doubt that the Montney is one of North America’s best shale gas plays,” said Jeff Tonken, birchcliff energy Chief executive. “(The deal) shows there’s a lot of interest in the Montney.”
Arc’s acquisition of Seven Generations will accelerate consolidation in the region among producers carrying too much debt, Tonken said. Some are due for reviews of loans that are based on their oil and gas reserves, and those inventories are depleted after many cut capital spending, he said.
birchcliff does not see itself as a target and has ample inventory of its own to grow without acquisitions, Tonken said.
“We’re just minding our own business, making money for our shareholders.”
The Montney’s fortunes could improve if u.s. gas development declines under biden, said Stephen Kallir, Vice-president of Calgary-based bluesky equities, which manages shares of Seven Generations and Tourmaline.
Shares in both ARC and Seven Generations climbed in Toronto on Thursday, signalling investor satisfaction with the deal.
More deals are likely as producers get larger to save costs, Kallir said.
“I think we’ll see another headline-grabber this year.”
One of the jewels in Arc’s crown is its liquids-rich Attachie acreage that it has so far left undeveloped. On a conference call, ARC chief executive Terry Anderson said the combined company’s priority would be repaying debt, but by next year it could sanction Attachie development. Attachie has an estimated 8.9 billion barrels of liquids and 32 trillion cubic feet of gas resources in place, according to a company presentation.
“ARC now has a huge cash flow machine that should give it the confidence and ability to develop Attachie,” raymond James’ Mccrea said.
norway’s sovereign wealth fund wants the companies in which it invests to start living up to explicit gender diversity goals.
The world’s biggest wealth fund, which oversees about US$1.3 trillion from its head office in Oslo, said boards on which women make up less than 30 per cent of the total should consider setting targets for gender diversity, according to a position paper published on Monday. The idea is to try to end the “persistent underrepresentation” of women on corporate boards.
Chief executive nicolai Tangen has made clear he intends to use his position at the helm of the giant investor to make companies more responsible in a number of key areas, including the environment and their roles in society.
The fund, which was set up in the 1990s to invest norway’s oil and gas revenues abroad, owns about 1.5 per cent of global stocks, spread across about 9,000 companies.
having fewer women “may indicate that a board is recruiting too narrowly and does not have a clear view of the full range of backgrounds and competences required to be effective,” it said, adding it will require progress reports from companies.
The G20/OECD Principles of Corporate Governance specifically refer to improving gender diversity on boards as a relevant measure, the fund said. On average, 26 per cent of board members are female in the G7 countries, it said, while in Europe, regulatory requirements vary between 30 and 40 per cent.
“While there are many different dimensions to diversity, we are particularly concerned by persistent underrepresentation of women on boards,” the investor said. “Based on our experience from markets with mandatory gender quotas for company boards, we do not believe that gender diversity will crowd out other qualifications.”