Deals of the Week: CNOOC continues Asia's incursion into Canada with OPTI acquisition

Eoin Coyne
Evaluate Energy

CNOOC continued Asia’s Canadian asset build up this week with the acquisition of the beleaguered Canadian oil sands company OPTI Canada, in a deal worth $1.95 billion (net of cash on OPTI’s balance sheet). The acquisition offered virtually no premium on the 1-day prior share price of OPTI, which had fallen by 95% since April 2010. The move by CNOOC brings the total expenditure on upstream properties in Canada by Asian companies in the past 3 years to $16 billion, a figure that would have been even greater had Petrochina’s $5.5 billion Montney shale farm-in with Encana not been cancelled last month. The deal will also see CNOOC join fellow Chinese State companies, PetroChina, Sinopec and Chinese Investment Corp. in owning interests in the growing Canadian oil sands sector.

OPTI’s main asset is a 35% stake in the Long Lake oil sands project, operated by Nexen. Since the project came onstream in 2008 it has been beset with operational problems, hampering output and leading to OPTI relying on debt to meet operating cost demands. With Long Lake still under performing, OPTI’s slide into bankruptcy has looked inevitable and just last week the company applied for bankruptcy protection. Such was the level of OPTI’s debt that the shareholders only received $34 million of the $2.1 billion outlay by CNOOC, with the rest of the consideration going towards OPTI’s bondholders.

In Australia, Santos negotiated a deal to take their stake in Eastern Star Gas Ltd. to 100% in a $685 million transaction. Santos will immediately limit their exposure from the deal by selling a 20% interest in Eastern Star’s Gunnedah permits to TRUenergy Pty Ltd. for $299 million. The assets that Santos was keen to gain from this deal are coal bed methane properties in the Gunnedah basin of Australia, to which Santos aims to apply its LNG technologies, in order to export gas to the lucrative Asian Markets. Unlike the deal that saw compatriot BHP Billiton increase their exposure to the depressed US gas spot price, Santos will not suffer from low gas realizations in the medium term with LNG spot prices in Asia recently surpassing $13 per mcf, compared to a US price of approximately $4.50 per mcf.

In other LNG news, INPEX took Royal Dutch Shell as a partner in their offshore Indonesia Abadi field this week, selling a 30% stake for an undisclosed fee. INPEX are looking to tap into the Floating LNG technology that Shell will gain when they build the world’s first FLNG plant offshore Australia in the Browse basin. So far, LNG facilities have been confined to onshore sites making many offshore gas fields, especially if far away from land, sub economic to produce. The introduction of FLNG, if Shell can prove it to be successful will open up a plethora of previously unviable fields making Shell an attractive farm-in partner.

TNK-BP continued to give their upstream portfolio a more international presence by reaching an agreement with Perta Energia to take a 45% interest in 21 blocks in the Solimoes basin of Brazil for an undisclosed consideration. TNK-BP, which risked the wrath of Russian authorities when it blocked the BP-Rosneft artic joint venture, had previously also expanded into Vietnam and Venezuela when BP sold them their interests for $1.8 billion in October 2010.

Endeavor International Corp. added to its Marcellus shale assets this week in a $110 million deal with multiple sellers. The assets are still in the early stages of development but when taking into the account the value of the estimated 1-1.3 tcfe of recoverable gas resources, the cost per proved mcfe works out at an attractive rate of less that $2.

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