Weekly Update: China ups Canadian resource portfolio with Daylight Energy acquisition

Eoin Coyne
Evaluate Energy

Sinopec added to China’s Canadian asset grab this week through a $2.9 billion (including debt) takeover of Daylight Energy Inc. Sinopec achieved a recommendation from the board of Daylight by offering C$10.08 per share, representing a huge premium over the $4.59 that Daylight Energy were trading at one day prior to the offer. In Daylight Energy they will receive a company 67% weighted towards gas and with the majority of reserves already developed. Daylight also offers additional upside in their land holdings in the Montney shale play and the company’s recently disclosed 130,000 acre land position in the rapidly emerging Duvernay shale play. The acquisition metrics after the upside and tax pools have been considered equates to under $18 per proved boe.

The move follows a similar pattern to other Asian NOC’s keen to utilize the developing LNG export capabilities on the west coast of Canada. The deal coincided with the Kitimat LNG terminal partners, Apache, EOG and Encana receiving an export license this week, paving the way for 1.2 bcf/d of gas to be shipped from Canada to the vastly more lucrative Asian markets by 2016. Kitimat may soon be followed by another major export terminal in British Columbia if the proposed LNG facility by Progress Energy and Petronas passes its feasibility study. Prior to Sinopec’s offer, PetroChina were also close to completing a major gas acquisition with their $5.4 billion joint venture with Encana in the Montney shale play before negotiations broke subsequently down in June.

Dominion Petroleum became the latest small cap exploration company to be picked off this week by a larger peer. The share performance of pure exploration companies has been hit particularly hard by the drop in sentiment since April 2011 and even with a premium over the day prior price of 64%, investors who only entered into Dominion Petroleum during the first four months of the year will be nursing losses from this deal. The consideration by the acquirer, Ophir Energy amounts to $173 million including cash held by Dominion Petroleum for 4 million acres of exploration land primarily in East Africa.

Delek US Holdings increased their interest in the El Dorado refinery in Arkansas to 100% by paying $13 million for the final 11.7% interest in Lion Oil Company. The cost per barrel of capacity for the 80kb/d refinery was less than half of what Delek paid in March of this year and was telling for the US refining sector which looks set to enter into another period of stifled earnings due to decreasing demand. 

Looking for previous deals? Check out the Weekly Updates page for archives.

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