Alberta Gas Fields on Sale

Suncor Energy Inc (TSX: SU), Canada’s largest energy company, has just announced that it has agreed to a transaction with Direct Energy to sell natural gas assets for about $358.5 million.  The deal comes as part of Suncor’s strategic business alignment and ongoing plans to divest of a number of non-core assets totaling $2.8 billion.  The sale includes Wildcat Hills, near Cochrane, Alberta, where current production is about 80 million cubic feet of natural gas and natural gas equivalent per day.

Direct Energy, a Canadian division of Centrica Plc (PINK: CPYYY), Britain’s biggest energy supplier, is expecting to boost production 80 percent to about 180 million cubic feet of gas equivalent a day through the Wildcat Hills acquisition. The transaction will add 240 billion cubic feet of gas reserves, increasing total resources by about 60 percent.

Bargain Values

Last month Talisman Energy Inc. (TSX: TLM) the large Canadian oil and gas producer that sold off $2.3-billion in assets last year, agreed to divest natural-gas fields in Alberta and Ontario for $1.9-billion to free up cash for shale projects. The assets in Talisman’s latest sale include proved reserves equivalent to 120 million barrels of oil, according to the company. Gas accounts for about 90 percent of production from the fields, which are located in Alberta’s Peace River Arch and Hinton areas and the central Alberta Foothills, as well as in Ontario.

Talisman’s reserves have declined for two straight years, and its production remains below 2005 levels. Talisman stock has dropped over 11 percent this year to trade in the $17.44 range.

“These sales are value-accretive and will help us focus on, finance and build our growing, low-cost North American shale-gas business,” Talisman chief executive John A. Manzoni has said.

Shale Potential

North American gas producers are increasing output from shale formations, where rocks hundreds of feet below the ground are fractured to unlock fuel deposits. Estimates of shale gas within the Western Canada Sedimentary Basin resource vary from 86 to over 1000 trillion cubic feet. While there is huge potential in Alberta, shale gas production is in very early stages and commercial development is not likely to occur in Alberta for a number of years. This energy source will definitely be on the radar of investors and has the potential to make a significant contribution to global future natural gas supplies.  While it is not known how much of this shale gas can be economically produced, current experience regarding the development of unconventional gas sources suggests recoverable reserves are about five to ten percent of the resource potential.

Spot Prices

Summer heat and increased demand this week were insufficient to sustain the natural gas price level, as prices at trading locations across the lower 48 States posted declines. Overall, spot price at most locations in the lower 48 States fell between 30 and 45 cents per million British thermal units, although a number of locations posted price decreases of as much as 52. The Henry Hub spot price ended the report week yesterday, August 11, 39 cents lower than the preceding week, at $4.38 per million British thermal units.

Gasoline futures declined to a five- week low on speculation that demand for motor fuel will soften, as a jump in U.S. jobless claims to a five-month high signaled a slower economic recovery.  The Energy Department reported gasoline inventories rose 409,000 barrels in the week ended August 6 to 223.4 million, the highest level since April 30.

Front-month US natural gas futures declined slightly Thursday morning following the weekly EIA report showed a larger than anticipated inventory build.  The September natural gas contract NGU0 fell 6.2 cents, or about 1 percent, to $4.26 per million British thermal units.

With help from Assistant Editor Vivien Diniz