CNQ snaps up Anadarko gas properties
CALGARY -- Canadian Natural Resources Ltd. is paying $4.1-billion (U.S.) for Anadarko Petroleum Corp.'s assets in Canada, the most expensive deal in the firm's history and a major bet on natural gas, a commodity whose price has slumped severely this year.
The deal, funded fully by debt, is the fifth biggest ever in the Canadian oil patch and brings Canadian Natural, or CNQ, 69,000 barrels of daily production, most of it gas, adding to its estimated 2006 daily average output of 578,000 barrels, roughly half oil and half gas.
The success of the deal depends in part on a natural gas price at higher levels than it is today, said Alastair Dunn, a senior money manager at Connor Clark & Lunn Investment Management Ltd., a large CNQ shareholder, but he added the company has pulled off big moves before.
"These guys have a very good track record," Mr. Dunn said. "They've made a number of acquisitions over their history and have done a pretty good job. It's hard not to give them the benefit of the doubt."
Abundant supply of natural gas and modest demand have pushed the price of the fuel to its lowest point in two years, down 56 cents yesterday to $4.89 for a million British thermal units. The wildly volatile commodity is down 68 per cent from a peak close of $15.38 in December after last year's hurricanes but is still close to the average of this decade of around $5.60, about triple the average $2 level of the 1990s.
Buying a large portfolio of gas assets caught some observers by surprise. The company earlier this year cut back on gas drilling because of high costs and lower prices.
Yesterday, it said it would cut more conventional oil and gas spending in 2007, as much as $1-billion (Canadian) or about 25 per cent less than it's spending this year.
That led analyst Ben Dell of Sanford C. Bernstein & Co. to call it "bizarre" that the company is buying more gas properties.
"For CNQ, the price isn't terrible but they've already got their hands full [with the Horizon oil sands project]," Mr. Dell said.
"I think this is going to be a big distraction and dilutes the oil sands story. It's tough to see how this improves CNQ."
CNQ said it sees the most of the new properties as long-term holdings, many of which are near their own in B.C. and Alberta, but also said it would sell some assets.
President Steve Laut said CNQ would assess its best opportunities of where and when to drill, adding that it could handle potential challenges, whether they be costs at the $6.8-billion Horizon project, which is under construction, or commodity price fluctuations.
"We're comfortable with Horizon. We feel confident in our ability to execute. We have enough financial flexibility to handle any curve balls," Mr. Laut said in an interview.
Other investors questioned whether the country's No. 2 energy producer is any better off even as it grows bigger.
"It gives them more critical mass but it's still a fairly neutral transaction," said Ari Levy, a vice-president at TD Asset Management Inc., a large CNQ shareholder. "I don't think it's transformational. It make them bigger in the areas they're already in."
Acquisitions have always been a key part of the company's growth and the company spent $700-million in 2004 to buy some Anadarko properties. In early August, CNQ said it wasn't interested in Anadarko Canada because it thought the price would be too high but a push by Anadarko financial adviser Tristone Capital in later August convinced CNQ management to take a closer look.
"The more we dug in, the more we liked them," Mr. Laut said.
George Gosbee, chief executive office of Tristone, said some assets sold in recent years haven't been top tier and pitched this package as a rare opportunity. "They're phenomenal assets," Mr. Gosbee said.
Adam Waterous, president of Scotia Waterous, which was the financial adviser to CNQ, called it a "win-win" deal.
"Murray Edwards [CNQ vice-chairman] continues to demonstrate his exceptional deal-making ability," Mr. Waterous said.
It is the style of Mr. Edwards and CNQ to move more quickly than competitors to scoop up acquisitions, a strategy they employed in 1999 to buy assets from BP PLC that included what is now Horizon.
Anadarko earlier this year spent more than $20-billion (U.S.) to buy two companies in the United States and became overburdened with debt, drawing the ire of investors, and rushed to sell its Canadian holdings to raise new funds.
The official "data room" was only set to be opened by Tristone to potential buyers next week -- with international names like Total SA among the interested parties -- but CNQ got an early look.
Dominion Bond Rating Service Ltd. said CNQ's move was an "aggressive use of debt" and "will result in a significant weakening of the company's balance sheet."
CNQ shares fell $1.83 (Canadian) or 3.6 per cent to $49.46 on the Toronto Stock Exchange.
The company started as a tiny player during the bust of the late 1980s when it was recapitalized by a small group led by Calgary financier Murray Edwards with only a couple hundred thousand dollars.
It's now Canada's No.2 energy producer, worth about $27-billion, the biggest company in Canada with no public relations department (investor relations handles it). There also isn't a CEO. CNQ is instead run by committee, led by Mr. Edwards, chairman Allan Markin, vice-chairman John Langille and Mr. Laut.
Natural gas reserves*
EnCana: 6.5 trillion cubic feet**
Canadian Natural: 5.1 tcf (3.5 from Canadian Natural and 1.6 from Anadarko Canada)
Conoco: 3.5 tcf (1 tcf from Conoco Canada and 1.9 from Burlington Canada) **
Talisman: 2 tcf
*In Canada, proved. Dec. 31, 2005
** After royalties
SOURCE: COMPANY REPORTS
Big deals*
PanCanadian-AEC merger
$11.8-billion (2002)
Conoco buys Gulf Canada
$9.6-billion (2001)
Devon buys Anderson
$7-billion (2001)
Union Pacific, buys Norcen Energy
$4.9-billion (1998)
*Enterprise value, equity and debt
