Exxon to buy Canada’s Celtic Exploration for $2.6-billion10/17/2012
Exxon Mobil Corp., the most-watched company in the energy industry, is making a big move into a promising Alberta natural gas play with the $2.6-billion acquisition of Celtic Exploration Ltd., whose lands may one day feed an LNG export terminal.
The deal, which includes the assumption of Celtic’s debt and convertible debentures, values the company at $24.50 a share, a roughly 35 per cent premium, and comes amid a large outpouring of money by major energy players looking to secure gas they can sell to Asia. Including the debt, the deal is worth $3.1-billion, and also gives investors shares in a new spin-off company.
Celtic had assembled a large position in the Resthaven Montney, a play in northwestern Alberta that is 195 kilometres from pipelines that could carry gas to the British Columbia West Coast, where Exxon and numerous other companies are planning expensive new export terminals. Celtic’s Resthaven Montney land contains some 13-trillion cubic feet of recoverable natural gas, according to an estimate by Raymond James analyst Luc Mageau, equal to nearly three years of Canada’s entire gas output, and enough to supply a large LNG plant for 20 years.
“Obviously, Celtic’s assets are strategically located” for LNG, Mr. Mageau said. He added: “This is the beginning of the LNG train. You’ve seen it with the national oil companies. Now we’re starting to see it with the majors. I think it’s going to be more of a recurring theme.”
Exxon, he pointed out, is believed to have attempted to wrest Progress Energy Resources Corp. from Malaysian company Petronas; Petronas held on to Progress, and is also working on plans for an LNG terminal on the northern B.C. coast.
Celtic has been an early mover into a number of promising plays, including the Duvernay in Alberta, which has shown some potential for producing natural gas liquids. Those liquids tend to be more valuable than gas itself, although they have declined in value as numerous companies race to produce them.
By moving early, Celtic was able to amass large areas of land at cheap prices. But with 75 per cent of its production as gas, it struggled in today’s markets, where gas is selling at a steep discount to oil. And, like many smaller companies, Celtic did not have the cash on hand to rapidly develop its huge land base, given the cost of drilling expensive horizontally-fractured wells. That alone presents opportunities for Exxon.
“The capital requirements were well beyond their cash flow to develop at a reasonable pace,” said Eric Nuttall, portfolio manager for Sprott Energy Fund. “The net present value accretion where you can move production that would have been 10 years out and move it into three or four or five – it’s hugely accretive.”
As part of the deal, Celtic shareholders will also receive a half-share in a new “Spinco” company that will be led by the company’s current management team and include production of 3,300 barrels of oil equivalent a day, 90 per cent of it gas. The company said Spinco shares should have a net asset value of $2.32.
The list of remaining small companies with large Canadian natural gas assets that might attract large takeovers is dwindling, however. “As far as who could be next, there’s a really small list of people out there - Tourmaline [Oil Corp.], someone like a Painted Pony [Petroleum Ltd.], someone like an ARC Resources [Ltd.] - those would be my short list,” Mr. Mageau said.
Celtic had forecast 22,000 barrels a day of oil equivalent production in 2012. Its total Montney land base stands at 224,000 hectares, 83 per cent of it in the Resthaven area. Between the Resthaven and some of its Duvernay land, the company believes it has places to drill 3,500 wells - a huge number.
Markets have recently begun to see more upside in gas prices than oil, but few have moved as aggressively into the gas space as Exxon. In late 2009, for example,the company agreed to an all-share takeover of XTO Energy Inc. that was then valued at $31-billion (U.S.), plus $10-billion in debt.
As part of the Exxon deal, Celtic shareholders will also receive a half-share in a new “Spinco” company that will be led by the company’s current management team and include production of 3,300 barrels of oil equivalent a day, 90 per cent of it gas. The company said Spinco shares should have a net asset value of $2.32 (Cdn).
Celtic has agreed to pay a $90-million break fee to Exxon if the deal falls through.
(Globe and Mail)