Dealtalk: Chevron's Duvernay sale seen attracting mid-sized Canadian shale operators

Paramount Resources (Pre-Merger)

24/01/2024 16:39

By Nia Williams
       Jan 24 (Reuters) - As Chevron Corp  CVX.N  markets its
Duvernay shale assets, the U.S. oil major is most likely to find
a buyer among a handful of mid-sized Canadian firms that are
boosting investment in a region that has yet to fulfil its
potential, analysts say. 
    The play is situated in west-central Alberta and currently
produces nearly 200,000 barrels of oil equivalent per day
(boepd), according to consultancy Wood Mackenzie. It is much
smaller than the nearby Montney shale play and the major U.S.
plays like the Permian.
    Analysts said Whitecap Resources  WCP.TO  and Paramount
Resources  POU.TO  among potential suitors given their proximity
to Chevron's operations, and their recent interest in snapping
up Canadian shale assets. Chevron's Duvernay assets could fetch
up to $900 million, Houston-based advisory firm Energy Advisors
Group estimates.
    Whitecap declined to comment and Paramount did not respond
to a request for comment.
    The Duvernay has seen eight deals worth $2.9 billion in the
last three years, Wood Mackenzie said, as well a plan announced
in December from Athabasca Oil Corp  ATH.TO  and Cenovus Energy
 CVE.TO  to spin-out a Duvernay-focused joint venture.
    Tourmaline Oil Corp  TOU.TO  is seeking buyers for its 2,000
boepd of non-core Duvernay production.
    "The Duvernay is looking like a hot spot for this year so
it's not surprising that M&A is happening," said Phil Skolnick,
an analyst at brokerage Eight Capital, noting that lower
drilling costs were driving a surge in licensing activity among
existing operators.
    Skolnick and Wood Mackenzie analyst Mark Oberstoetter
mentioned Whitecap and Paramount as potential bidders.
    Chevron said last week it will market its Duvernay assets,
producing about 40,000 boepd, as it streamlines global
operations following several big acquisitions. The U.S. oil
major holds a 70% stake in the assets along with KUFPEC Canada
Inc, a unit of the Kuwait Foreign Petroleum Exploration Co.    
    Chevron told Reuters on Tuesday that it expects the assets
"to be attractive to other companies with complementary
portfolios," though there are no assurances of any sale.
    
    A NEW ERA 
    Skolnick said Murphy Oil Corp  MUR.N , which holds 4,000
boepd of Duvernay production and sold a portion of its assets
there for C$150 million ($111.3 million) last year, will likely
watch Chevron's sale process closely.
    "If Chevron gets a good price I'd not be surprised to see
Murphy selling," he added.
    Murphy declined to comment. 
    One recently acquisitive Canadian producer that says it will
pass on the Chevron auction is Crescent Point Energy  CPG.TO .
The company has completed a multi-billion-dollar asset
transformation program, including the $700-million purchase of
Shell's  SHEL.L  Duvernay assets in 2021, with its takeover of
Hammerhead Energy last year, a spokesperson said.
    Oil and gas companies started looking closely at the
Duvernay around 2012 but costs of more than $20 million per well
deterred significant investment, especially after global oil
prices crashed in 2014/15.
    Firms eager to exploit Canadian shale instead focused on the
nearby Montney that straddles northern Alberta and British
Columbia, where costs fell faster and producers anticipated
strong demand for gas from the Shell-led LNG Canada project on
the west coast.
    But Crescent Point's deal to buy Shell's production
signalled a fresh wave of interest in the Duvernay, where
companies are increasingly reporting better-than-expected
productivity and well costs of around $12 million, analysts
said. 
    Duvernay deal values are trending in line with the North
American oil and gas sector average, excluding the higher-priced
Permian and Montney, said Wood Mackenzie's Oberstoetter.
    The rate of return on Duvernay wells is roughly half that of
the Montney, Oberstoetter added, but Chevron is choosing to sell
its assets at a time when the market looks strong.
    "Chevron has spent about $3 billion on the Duvernay since
2011," he said. "(The asset) is proven up, it's at an
interesting point and there's a lot of remaining life."
($1 = 1.3476 Canadian dollars)

 (Reporting by Nia Williams
Editing by Denny Thomas and David Gregorio)
 ((nia.williams@thomsonreuters.com; +1 403 531 1624; Reuters
Messaging: nia.williams.thomsonreuters.com@reuters.net))