A Canadian Natural Resources pump jack pumps oil out of the ground near Dorothy, Alta., June 30, 2009© Todd Korol / Reuters/Reuters
Canadian Natural Resources Ltd. is putting a quarter of its Montney natural gas assets up for sale or partnership, adding another big parcel of property in the B.C.-Alberta region to the auction block.
The Calgary energy company is departing from its usual practice of holding tight to assets and shunning joint ventures with the planned sale. The news comes the same week Talisman Energy Inc. said it will shed parts of its Montney and north Duvernay gas holdings in a bid to bolster its finances.
Officials with Canadian Natural say the timing is coincidental and their decision is simply a way to capture the return on a high-value asset.
"It's part of our evolution," Canadian Natural president Steve Laut said in an interview Thursday. "It's different than the past but we think there's an opportunity here."
With abundant natural gas supplies weighing down North American prices, Canadian Natural is following the path of other producers and focusing its capital allocation to higher-return crude oil projects. In recent months, the company's management acknowledged capital allocation to gas has been limited.
Canadian Natural officials have now opened the door to entreaties from major international players, possibly joining with a wave of joint venture partnerships being inked to develop natural gas properties. The company will consider the outright sale of the liquids-rich 100,000 hectares on the western edge of its core natural gas holdings – or else a joint venture partner with LNG expertise.
The move jolted some analysts, who wondered about the motivation behind the shift in strategy.
"This is a big surprise and out of character for CNQ, which typically does not ever sell assets or consider taking partners," wrote CIBC World Markets analyst Andrew Potter. Mr. Potter also noted that little is known about the lands being sold and "there are several gas assets on the market, meaning that the proceeds outcome is far from certain."
Company officials emphasized they still have one of the largest undeveloped Montney land bases in Canada, with natural gas holdings in British Columbia and Alberta.
Canadian Natural also reported a sharp drop in fourth-quarter earnings compared with the previous year, along with a dividend increase of 19 per cent.
Profit in the fourth quarter were $352-million, compared to $832-million for the same quarter last year – while cash flow from operations fell to $1.55-billion from $2.16-billion. The results reflect lower energy prices, lower natural gas sales volumes, and lower synthetic crude oil sales volumes.
Vice chairman John Langille, who will retire in May, emphasized the company generated more than $6-billion in cash flow for 2012.
A major issue for Canadian Natural continues to be oil differentials – the discount Western Canadian producers receive for heavy oil – but Mr. Laut spoke confidently about the ability to find ways to get crude to refineries and more-lucrative American markets.
"We're bullish on heavy oil pricing in 2013, as well as the mid- and long-term, as our significant heavy oil conversion capacity coming on-stream in PADD II, significant current unrealized heavy oil refinery capacity on the Gulf Coast, and we see the infrastructure constraints to get to the Gulf Coast being removed," he said during a conference call Thursday.
Canadian Natural (CNQ)