By Chester Dawson and Judy McKinnon
CALGARY-- Canadian Natural Resources Ltd. agreed on Wednesday to
buy Devon Energy Corp.'s Western Canadian natural gas and light oil
assets for 3.125 billion Canadian dollars ($2.85 billion), making a
big bet on gas prices.
Calgary-based Canadian Natural, or CNRL, one of Canada's largest
oil and gas producers, said the deal will increase its total
production by 11% to about 780,330 barrels of oil equivalent a day
and add 2.2 million acres of undeveloped land near its existing
properties.
The assets produce about 383 million cubic feet a day of natural
gas, 10,800 barrels a day of light crude oil and 12,000 barrels a
day of natural-gas liquids. The purchase excludes Devon's heavy-oil
operations in Alberta and natural gas-rich assets in the Horn River
area of northeastern British Columbia.
For Devon, the sale is part of a repositioning of the Oklahoma
City-based company toward oil and away from its roots as a natural
gas producer amid a multiyear slump in gas prices.
In November, it bought GeoSouthern Energy Corp.'s assets in the
Eagle Ford oil play in south Texas for $6 billion. Devon said
Wednesday that the sale of its Canadian assets, which it had put on
the market late last year, will help repay debt incurred to finance
the Eagle Ford acquisition.
Wells Fargo Securities in a report said Devon's proceeds from
the sale are "stronger than anticipated" and a sign the company is
on track to reach its asset-sale targets. However, investor
research firm International Strategy & Investment Group called
the deal pricing a "giveaway" to CNRL.
In recent trading on the Toronto Stock Exchange, CNRL was up
4.7%, while Devon was up 3.4% in New York.
With nearly three-quarters of the Devon holdings representing
natural gas, CNRL's move comes at a time when many energy companies
in North America are seeking to pare down their gas exposure. CNRL
itself had planned to shed some Western Canadian gas assets until
it aborted a proposed sale last month. Company executives said the
contrarian move reflects, in part, a stabilization in natural gas
pricing in recent weeks.
CNRL Chief Executive Steve Laut said on a conference call that
"2014 and potentially into 2015 looks like pretty strong gas
pricing and that helps the metrics of this deal."
Mr. Laut said the Devon properties largely overlap with CNRL's
existing core holdings and that scaling up will result in higher
profits and lower costs.
The acquired assets are heavy in so-called natural gas liquids,
or NGLs, such as propane, which command a premium to dry gas
prices. But the deal also positions CNRL to potentially benefit
from one or more proposed liquefied natural gas terminals planned
for the coast of British Columbia. Although CNRL has no stake in
any of a nearly a dozen Western Canadian LNG proposals, demand for
natural gas could rise if any of the plants are built.
CNRL is best known for its heavy oil extracting oil sands
operators in northern Alberta, but it is also one of the country's
largest natural gas producers. The company has a history of zigging
while rivals zag, snapping up out-of-favor assets in the
expectation of higher prices.
In 1999, it bought out BP PLC's Western Canadian oil operations
for C$1 billion at a time when crude prices were about $20 a
barrel--about one fifth of the price of oil today.
CNRL said about 900 of Devon Canada's 2000 employees will
transfer along with the assets, including both field and
head-office personnel.
Write to Chester Dawson at chester.dawson@wsj.com and Judy
McKinnon at judy.mckinnon@wsj.com
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