Nexen acquired a further 15 per cent interest
in the Long Lake project in 2008.
WHAT A DIFFERENCE
A YEAR MAKES
M&A activity in the oilsands drops dramatically in 2008
BY TOM PAVIC
M
ergers and acquisitions (M&A) activity in the
Canadian oilsands arena dropped considerably
in 2008, with only one significant new entrant,
U.S.-based Occidental Petroleum Corporation.
This is a drastic change from 2007, when there
were a high number of large multinational oil
and natural gas companies entering the Canadian oilsands by acquisi-
tion or through joint ventures with existing players.
Some of the new entrants to the oilsands in 2007 were BP plc,
Marathon Oil Corporation, Royal Dutch Shell plc, and Statoil ASA.
Sayer previously reviewed the 2007 activity in an article titled, “The
International Flavour of Canada’s Oil Sands.”
In July 2008, Occidental acquired Enerplus Resources Fund’s 15
per cent working interest in the Joslyn oilsands lease for $500 million.
At the time of the acquisition, Occidental stated that it expects to
spend approximately US$2 billion over a number of years to develop
the reserves associated with the project. Occidental estimates that
production from Joslyn will commence in 2014 at 11,000 barrels per
day, and grow to 31,000 barrels per day net to the company. French-based Total S.A. is the operator of the Joslyn project.
Some existing oilsands players increased their interests through
acquisitions in 2008. Additional oilsands interests were acquired
by Total S.A. in 2008 with its acquisition of Synenco Energy for
approximately $540 million. Synenco held a 60 per cent interest and
was managing partner and operator of the Northern Lights oilsands
project. SinoCanada Petroleum Corporation, an indirect wholly
owned subsidiary of China-based Sinopec, owns the remaining 40
per cent of the partnership and project. Synenco also held a 100
per cent interest in the McClelland oilsands lease adjacent to the
Northern Lights project lands.
Nexen increased its presence in the oilsands in 2008 with its
acquisition of Opti Canada’s 15 per cent working interest in the
Long Lake project for $735 million. With this transaction, Nexen
increased its working interest in the Long Lake project to 65 per
cent, and became the operator of the project, while Opti’s working
interest fell to 35 per cent.Opti’s decision to sell was the conclusion
of a strategic review process announced in the fall of 2008 by the
company as it reviewed future financing options. Opti’s strategic
review process was precipitated by the global financial crisis and the
fall in the price of oil.
The dramatic fall in the price of oil in the second half of 2008
has had a major effect on the Canadian oil and natural gas industry
and the oilsands industry in particular. The oilsands industry is
affected much more because of the high costs associated with
production, as well as the amount of up-front capital needed to
develop these projects. With oil prices well below the lifting costs
associated with some of the new operations, many oilsands projects
have become uneconomic.
Many companies that have oilsands exposure have cut back or
postponed capital expenditures associated with these projects in
the short term hoping that oil prices will rebound and the economic
climate will improve down the road. Other oilsands companies
may have to seek bankruptcy protection under the Companies’
Creditors Arrangement Act (CCAA) as a result of being overextended on credit lines. BA Energy, developer of the proposed
$4-billion Heartland Upgrader near Edmonton is the first oilsands
company which has gone into CCAA in order to prevent a fire sale
of its assets.
Tom Pavic, chartered financial analyst, is vice-president of
Sayer Energy Advisors.
