ENERGY: NATURAL GAS SUITS ASIA BETTER THAN OIL
International investors including Exxon Mobil Corp. are favouring natural gas over oilsands acquisitions in Canada as the less- expensive way to supply Asian markets.
Three of the five largest energy acquisitions announced by foreign buyers in Canada this year, valued at a combined $ 9.8 billion, were for natural gas assets, according to data compiled by Bloomberg. The trend will continue next year as liquefied natural gas developers move closer to commissioning projects, said Robert Mark, who helps oversee $ 4.5 billion at MacDougall, MacDougall & MacTier Inc. in Montreal.
“There’s a unique scramble in Canada to lock up gas assets for LNG,” he said. “Asian buyers look at that as a significant opportunity.”
A race to secure natural gas for planned LNG export on Canada’s West Coast by Royal Dutch Shell Plc, Exxon and others has spurred interest in the fossil fuel among investors seeking to benefit from the price differences between Asia and North America. With at least five LNG projects valued at as much as $ 15 billion each proposed for British Columbia’s northwest coast, proponents are lining up supplies from reserves such as the Horn River and the Montney shale formations.
Canadian natural gas traded Monday at $ 3.175 per gigajoule, after more than doubling from a 10- year low of $ 1.4475 on April 20. That compares with about $ 16 for LNG contracts sold in Japan. A gigajoule is a unit of energy. About 100 gigajoules of natural gas is required to heat a single family home in Canada for one year.
Foreign buyers of natural gas producers or assets this year include Tokyo- based Mitsubishi Corp., Japan’s largest trading company; Irving, Texas- based Exxon; and Petroliam Nasional Bhd, Malaysia’s state- owned oil and gas company. The premiums paid for those assets have reached as high as 97 per cent, according to data compiled by Bloomberg.
Petroliam Nasional, known as Petronas and based in Kuala Lumpur, boosted its first offer for Progress Energy Resources Corp. to $ 22, or 97 per cent more than the Calgary- based company’s 20- day average before the initial proposal, the steepest premium on record in the oil and gas industry.
Petronas Monday extended its $ 5.16- billion offer for Progress after an initial regulatory rejection by the Canadian government on Oct. 19. Progress soared eight per cent, the biggest gain in three months.
Exxon, the world’s largest energy company by market value, agreed to pay $ 2.86 billion for Calgary- based Celtic Exploration Ltd.’ s leases in Alberta’s gas- producing Duvernay and Montney formations on Oct. 17, its biggest Canadian acquisition.
Canada’s decision on Petronas’s bid will determine how many more foreign investors are lured to Canada, said John Stephenson, who helps manage $ 2.7 billion at First Asset Investment Management Inc. in Toronto. He owns shares of natural gas producers including Painted Pony Petroleum Ltd. and Crew Energy Inc.
“It remains to be seen how many of these deals get done,” he said in a phone interview. “Up until this point, natural gas deals have been on the upswing.”
Producers with holdings in the Montney formation in northeastern British Columbia could see bids for assets or entire companies as LNG proponents secure gas reserves, said Gordon Currie, analyst at Salman Partners Inc. in Calgary.
“You need to have a lot of reserves tied up to support an LNG export facility so it’s entirely possible they would be out looking to tie up additional resources,” Currie said in a phone interview.
Targets could include Painted Pony, Talisman Energy Inc., Advantage Oil & Gas Ltd., and ARC Resources Ltd., Currie said. Shares of these gas producers, all based in Calgary, have declined this year through Monday, with Painted Pony down 5.3 per cent; Talisman, 7.2 per cent; Advantage, 18 per cent; and ARC Resources, 3.2 per cent.