Imperial Oil Ltd. IMO-T and ExxonMobil Canada XOM-N are parting ways with significant shale oil and gas assets they co-own in northwest Alberta’s Montney and Duvernay plays, selling them to Calgary-based Whitecap Resources Inc. WCP-T for $1.7-billion.
Whitecap announced the acquisition of XTO Energy Canada Tuesday evening. In an investor call Wednesday, executives said the move would add more than 2,000 drilling locations and 600,000 acres of drilling rights to Whitecap’s portfolio, providing more than two decades of production inventory.
Net production from the assets is about 140 million cubic feet of natural gas a day, along with around 9,000 barrels of crude oil, condensate and natural gas liquids.
Whitecap’s buy expands assets it already holds in the greater Kakwa region of Alberta, and marks the company’s entry into the liquids-rich Duvernay play.
“This is truly a transformational acquisition for Whitecap,” company president and chief executive Grant Fagerheim told the call Wednesday.
“We have been pursuing a portion of these assets for quite some time now, and getting our hands on the entire asset significantly enhances the sustainability and profitability of Whitecap Resources.”
With Russia’s invasion of Ukraine stoking global supply concerns, a leap in commodity prices has pushed up the value of oil and gas properties across North America.
Exxon and Imperial began marketing the assets at the start of this year, hoping to capitalize on a rebound in oil and gas prices.
The price of West Texas Intermediate crude, an oil benchmark, was north of US$109 a barrel on Wednesday, up more than 43 per cent since the start of the year.
Although Whitecap shares closed at $9.12 Wednesday on the TSX, down about 6 per cent, a research note from National Bank of Canada Tuesday evening said the purchase of the high-return, high-impact assets “provides Whitecap with a sustainable production base that can support continued debt reduction and return of capital, while improving operational sustainability and efficiency.”
“Whitecap continues to lead the conventional oil group in the [Western Canadian Sedimentary Basin] with strategic and sustainable acquisitions, positioning the Company to continue to deliver on long-term shareholder value creation through a return of capital model, supported by a diversified, high-impact and sustainable production base and further compounded by positive tailwinds through its new energy initiatives,” the note said.
A Bank of Nova Scotia research note said the sale would unlikely be enough to move the needle for Exxon, but fits well within the company’s announced plans of divestitures.
“While the sector is flush with cash from sustained elevated commodity prices we expect we could see more asset deals take place going forward in the remainder of 2022,” Scotiabank’s note said.
Whitecap’s purchase also includes a shallow gas cut processing facility, which Mr. Fagerheim called a strategic buy for the company, given that the facility can process product from third parties.
“Through the acquisition, we continue to demonstrate our commitment to finding ways to improve the long-term sustainability of Whitecap while being mindful of our emission footprint,” he said.
“Our team is chomping at the bit to take full control of these assets.”
Whitecap’s board also approved a 22 per cent monthly dividend increase on the back of the news.
With a report from Reuters
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