CALGARY — The Globe and Mail
Published
China Oil and Gas Group Ltd. is buying a private Canadian energy company for $236-million in what has become a trend in Asian buyers launching takeovers for small firms since the Harper government imposed tougher rules on deals in late 2012.
China Oil and Gas, a natural gas distributor as well as an operator of LNG plants and compressed natural gas-filling stations in China, is buying Calgary-based Baccalieu Energy Inc., which put itself on the auction block early this year.
Its senior executives, including chief executive officer Aidan Walsh and chief financial officer Scott Dyck, have agreed to stay on for at least two years to keep developing the business, China Oil and Gas said.
There have been only a handful of takeovers by foreign companies in the Canadian oil patch since Ottawa essentially closed the door on acquisitions of controlling interests in the oil sands by state-owned foreign firms when it approved the $15.1-billion takeover of Nexen Inc.by CNOOC Ltd. 19 months ago.
The more stringent investment regulations put no new limits on buying energy assets outside the northern Alberta oil sands, the third-largest crude reserves in the world. However, some investment bankers have said that the restrictions have scared off potential investors in other energy plays as well.
Nick Johnson, managing director of corporate finance at FirstEnergy Capital Corp., Baccalieu’s financial adviser, said he has not seen that. His firm has been involved in three recent deals involving foreign buyers for Canadian energy assets.
Interest among Asian buyers remains, though the preference is for light-oil plays, such as those operated by Baccalieu, Mr. Johnson said.
“It’s the cash flow, it’s the earnings,” he said in an interview. “The LNG proposition is still a few years out, so it’s harder to secure the reserves today because of the discount factor. If you have to buy the company today and you can’t export the product for a number of years, it’s more difficult to come to a value proposition.”
China Oil and Gas, listed on the Hong Kong Stock Exchange, is scooping up a company that produced 4,244 barrels of oil equivalent a day in the first quarter of this year. Two-thirds of that was oil and gas liquids and the remainder natural gas. In 2013, it earned $20-million on revenue of $74.7-million.
Baccalieu has stakes in 469 square kilometres in the Pembina, Ferrier, Sylvan Lake and Harmattan areas of west-central Alberta, where its proved and probable reserves are pegged at 22 million barrels of oil equivalent.
China Oil and Gas Buys Baccalieu Energy
China Oil and Gas said it has entered into an arrangement agreement to acquire Baccalieu Energy Inc. in Canada at the consideration of CAD236 million. The Group gets access to the North American oil and gas upstream market, becoming an international energy company with vertically integrated business structure.
Baccalieu Energy is a Canadian oil and gas producer focused on the highly economic Cardium light oil resource play. Baccalieu Energy holds interests in 181 gross sections (c.469 square kilometers) of land (50% undeveloped) including 139 gross sections (c.360 square kilometers) with Cardium rights and with operations in four main areas namely Pembina, Ferrier, Sylvan Lake and Harmattan of west central Alberta, Canada
In addition, Baccalieu Energy owns and operates approximately 200 km of oil and gas gathering systems, including 13 oil batteries with a combined capacity of approximately 1,500 m3 per day and 9 gas compressors with approximately 0.5 million m3 per day of combined capacity. These facilities are connected to 28 third party gas processing plants with a processing capacity of over 85 million m3 per day.
The average daily production of Baccalieu Energy was 4,244 barrels of oil equivalent (67% is light oil and NGLs, 33% is natural gas) and it achieved an average Operating Netback of C$51.5 per barrel of oil equivalent in the first quarter of 2014. According to the reserve report prepared by GLJ Petroleum Consultants and dated as of 31 December 2013, Baccalieu Energy has Proved reserves of approximately 16.2 million barrels of oil equivalent (60% is light oil and NGLs, 40% is natural gas) and Proved plus Probable reserves of approximately 22.0 million barrels of oil equivalent (60% is light oil and NGLs, 40% is natural gas).
As at 11 February 2014, Baccalieu Energy had a total of 195 oil and gas producing wells.
“The Group aims to become a competitive international energy company with vertically integrated business structure. It has been seeking suitable business opportunities in the energy sector related to the Group’s principal business operations, and is particularly drawn by Canada’s stable political environment, vast oil and natural gas resources and an established energy sector. Baccalieu Energy possesses quality producing oil and gas assets, a very experienced and proven management team, strong cash flow and profitability with considerable potential for growth. The Directors believe that through the acquisition of Baccalieu Energy, the Group could enter the upstream industry and therefore lift the Company’s image as an international energy company with a diversified geographic and business portfolio, which further helps to reduce concentration risk, improve earnings and enhance shareholder value,” China Oil and Gas said in a statement.
“Currently, there is a big gap in the natural gas prices between Canada and China, and therefore, there is significant profit potential to export natural gas from Canada to China in the future. A number of the world’s major energy companies have proposed the construction of multiple LNG export terminals in the western British Columbia, Canada, with a total design capacity of more than 7 billion cubic feet per day, creating great opportunities for the future development of the Canadian upstream energy companies. The Directors are of the view that the present move into the Canadian upstream oil and gas sector allows the Group to be best positioned for the future energy exports from Canada into China, and therefore breakthrough the bottleneck of the existing supply shortage and create significant synergies with the existing natural gas distribution business in China, which is highly beneficial to the Group’s long-term development,” it added.
Press Release, June 24, 2014
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