Will The Last Canadian Oil and Gas Company Turn Out The Lights?
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ExxonMobil (NYSE: XOM) announced the purchase of a small cap Canadian exploration and production company as the oil giant looks to increase exposure to various shale plays in western Canada. This deal underscores the renewed interest in oil and gas development in North America by the major integrated oil companies.
The Deal
ExxonMobil is offering $24.50 CAD per share for Celtic Exploration, which is headquartered in Calgary and trades on the Toronto Stock Exchange. Shareholders will also receive 0.5 shares of a new company created to hold assets of Celtic Exploration that ExxonMobil is not purchasing. These assets are at the Inga project in British Columbia, the Grande Cache project in Alberta, and interests in various oil and gas properties in other parts of Alberta.
This was the second deal announced by ExxonMobil that increased the company’s exposure to North America. In September, Exxon Mobil reported the purchase of oil and gas properties in the Bakken owned by Denbury Resources (NYSE: DNR), as that company has decided to focus on its enhanced oil recovery operations.
Overview
Celtic Exploration reported 78.8 million barrels of oil equivalent (BOE) of proved reserves, with approximately 44% in the proved developed category at the end of 2011. The company estimates that oil and gas production in 2012 will average 22,900 BOE per day and exit the year at 29,000 BOE per day.
Celtic Exploration has approximately 842,000 net acres under lease across western Canada with the overwhelming majority of this leasehold undeveloped. ExxonMobil is getting 545,000 net acres prospective for the Montney Shale at the Fir, Kaybob, and Resthaven areas, and 104,000 net acres prospective for the Duvernay Shale at the Kaybob project area. The company is also receiving acreage in other areas of Alberta.
Duvernay Shale
The Duvernay Shale acreage is spread across 164 sections and wells drilled here produce a considerable amount of natural gas liquids along with the natural gas production stream. The company estimates that it can drill from four to eight wells per section with the average wet gas well producing from 75 to 155 barrels of natural gas liquids for every one million cubic feet of natural gas.
Another operator with exposure to the Duvernay Shale is EnCana (NYSE: ECA), which has 400,000 net acres under lease. The company’s 2012 development program includes drilling from 10 to 12 wells into this shale during the year. EnCana is also soliciting joint ventures partners to help develop this play, where recent wells have contained from 120 to 300 barrels of natural gas liquids for every million cubic feet of natural gas production.
Montney Shale
The Montney Shale acreage at the Resthaven area is the largest that ExxonMobil is acquiring in the deal and is spread across more than 700 sections. The leasehold is also liquids rich, with wells here producing anywhere from 25 to 105 barrels of natural gas liquids per one million cubic feet of natural gas production. Celtic Exploration estimates that it has as many as 2,934 horizontal drilling locations here.
Other Canadian Deals
There have been other buyout deals involving Canadian energy companies over the last few quarters. The largest of these is the proposed acquisition of Nexen (NYSE: NXY) by CNOOC (NYSE: CEO), the Chinese state owned oil company, for $15.1 billion.
Nexen has a more diverse portfolio than Celtic Exploration, with operations in the oil sands, West Africa, the United Kingdom, and the United States. The company reported average oil and gas production of 202,000 BOE per day in the first quarter of 2012. The proposed deal is currently under review by the Canadian government.
The major integrated oil companies used to heap scorn on North America oil and gas properties and avoided most of the "mature" basins present on this continent. This has changed over the last two or three years as the smaller and nimbler independents applied technology to unlock huge deposits of oil and gas here.
shaleplays has no positions in the stocks mentioned above. The Motley Fool owns shares of Denbury Resources and ExxonMobil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
