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Griffiths Energy eventually secured oil and gas leases in Chad.

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If you haven't heard of Barrick Energy, you aren't alone.

A unit of global gold giant Barrick Gold Corp., you'd be hard pressed to find much mention of its oil and gas assets on the company website, which otherwise outlines a far-flung portfolio of 27 gold mines in the Americas, Africa and Australia.

On the other hand, that may not matter much after the Toronto-based miner said on Friday it has put the unit up for sale as it recasts corporate strategy to focus on core assets that maximize free cashflow and rate of return.

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That has been the new mantra at Barrick since June, when Jamie Sokalsky took the helm of the world's largest gold producer following the sudden ouster of his predecessor.

Barrick formed the energy unit in 2008, when it acquired Cadence Energy Inc. for some $410-million as part of a long-term strategy to mitigate booming energy costs. At the time, Cadence's production was expected to provide an economic hedge against 25 per cent of Barrick's annual direct oil consumption.

Including acquisitions in the past four years, Barrick Energy's production has risen to some 9,000 barrels of oil equivalent per day, from about 3,600 in 2008. It also produces natural gas.

But even as production increased, net contributions from Barrick Energy have diminished in recent years as the spread widened between oil prices in Alberta and the West Texas Intermediate (WTI) prices against which Barrick's energy costs are benchmarked.

"We see significant value in Barrick Energy, but with the diminished impact of the hedge for Barrick, we believe it makes sense to explore whether these assets may be of more value to another party," said Barrick spokesman Andy Lloyd. "The divestment of Barrick Energy is not expected to have a material impact on Barrick's cash costs based on the current spread between Edmonton Par and WTI."

In a 2011 annual report, Barrick said the energy unit made a net contribution of about $156-million, helping to reduce cash costs of producing gold at the company. Literally, the company takes revenue from the asset and uses it to offset fuel costs across its global operations.

Mr. Lloyd said the Barrick Energy credit for 2012 was about 2 per cent of cash costs per ounce. On an "all-in" cost basis, he said it would be less than 1 per cent.

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In fact, the gold company does not even report production, reserves or operating costs on the oil and gas assets.

Selling Barrick Energy is part of an effort to refocus spending on core assets that have the greatest potential to maximize returns for investors and represents a departure from the traditional gold company mindset of pursuing aggressive growth, sometimes at any cost.

The policy has seen Barrick announce some $4-billion in deferred spending plans since Mr. Sokalsky became CEO.

"We think this asset will have more value in the hands of an oil and gas company," said Mr. Lloyd.

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About the Author
Mining Reporter

Pav Jordan is a mining reporter for the Report on Business. More


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