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Noble Energy to pay US$494 million for Suncor oil and gas assets - Metro US

Noble Energy to pay US$494 million for Suncor oil and gas assets

CALGARY – Suncor Energy Inc. (TSX:SU), returning to its roots as an oilsands-focused company, has agreed to sell its U.S. Rockies natural gas assets to Houston-based Noble Energy Inc. (NYSE:NBL) for about US$494 million.

Noble announced Tuesday it would acquire virtually all of the Rockies holdings belonging to Suncor, which became Canada’s largest energy company when it merged with Petro-Canada in August.

Calgary-based Suncor has said it plans to sell between C$2 billion and C$4 billion in non-core assets and that its natural gas business in particular would be subject to significant downsizing.

“This is the first step as part of this larger natural gas divestiture program,” said Suncor spokesman Dany Laferriere.

“While this is not a fire sale, we’re certainly expecting to have most, if not all, of our sales completed by the end of 2010.”

Before gobbling up Petro-Canada, Suncor had been attractive to many investors as a pure-play on the oilsands. However, the company inherited a hodge-podge of natural gas, offshore and international assets through the transaction.

Once Suncor pares away some of its more peripheral holdings, it has said it expects to be roughly 70 per cent weighted toward oilsands, and 30 per cent weighted toward everything else.

Suncor’s strategy has been to use natural gas as a hedge against the fuel it needs to run its massive oilsands operations near Fort McMurray, Alta., said Lanny Pendill, an analyst with the Edward Jones brokerage in St. Louis, Mo.

Oilsands companies use natural gas to fuel local power plants that produce electricity needed on the massive projects. As well, gas is used to heat bloilers to produce steam used in so-called steam-assisted gravity drainage. or SAGD, projects.

In SAGD, oil producers inject steam via pipelines to melt tar-like heavy oil deep underground and then pump the oil through another pipeline to the surface. Sensors are required to monitor pressure and heat in the pipelines and reservoirs.

Pendill said that after the Petro-Canada merger, Suncor ended up with a lot more natural gas than it needed for its oilsands businesses.

“The fact of the matter is Suncor’s got better opportunities elsewhere. It makes a lot of sense,” Pendill said.

Petro-Canada acquired the Rockies acreage in 2004 from U.S. producer Prima Energy Corp. for US$534 million.

“Petro-Canada had pretty high hopes for the assets, but for the most part I would say that they never really lived up to expectations,” Pendill said.

Considering how little the Rockies gas assets fit in with Suncor’s portfolio and how costly they are to develop, US$494 million isn’t a bad price for the deal, he said.

“You wouldn’t expect these assets to get the top range in terms of the going prices right now.”

For Noble, the Rockies assets fit well with the Texas company’s presence in Colorado’s Denver-Julesberg basin, where it now has more than 530,000 net acres and net production of close to 52,000 oil-equivalent barrels per day.

It said 80 per cent of the assets it plans to acquire are within the Wattenberg field in northern Colorado, its largest onshore U.S. asset.

“Utilizing our technical and operational expertise, we now have an even larger platform from which to unlock further potential in the Wattenberg field and the overall basin,” said David Stover, Noble’s president and chief operating officer.

Noble estimates that the purchases will add the equivalent of 10,000 barrels of oil per day, or 46 million cubic feet of natural gas and 2,500 barrels of liquids to its daily production base.

Noble said it has identified “several thousand projects” associated with the assets being acquired, including over 2,000 in Wattenberg.

The company said it plans to add two rigs to its Wattenberg program in 2010 as a result of the transaction, bringing the total to eight.

The deal is expected to close in the first quarter.

In addition to the U.S. production, Suncor has signalled its intention to shed some of its smaller North Sea holdings and Trinidad and Tobago operations.

Chief executive Rick George told an analyst conference call in November that big projects in Libya and Syria could be worth keeping.

Last month Suncor sold 98 of its retail gas stations to Husky Energy Inc. (TSX:HSE). Suncor was required to divest some of its downstream assets – which include retail and distribution operations – as one of the Competition Bureau’s conditions for allowing the company to merge with Petro-Canada.

Of those sold, 68 stations had Suncor’s Sunoco banner and 30 have Petro-Canada’s.

Suncor shares rose about 43 cents or 1.1 per cent to C$38.73 on the Toronto Stock Exchange on Tuesday.

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