PTT Exploration & Production Pcl agreed to buy a 40 percent stake in Statoil ASA’s oil sands project in Canada for $2.28 billion in the biggest acquisition by a Thai company.
Statoil will retain 60 percent of the Kai Kos Dehseh project, according to statements by the two companies. The transaction is expected to close in the first quarter of next year, Stavanger, Norway-based Statoil said. Statoil’s head of international development and production said the company initiated the sale process in October.
PTTEP, as Thailand’s biggest energy explorer is known, is “opportunity constrained” within Thailand, Adrian Loh, an analyst at Daiwa Capital Markets in Singapore, said by telephone today. “In terms of growth, it has to focus overseas, and the oil sands is a key area for a lot of Asian energy companies.”
Chinese rivals have already bought Canadian assets this year, with PetroChina Co. acquiring a C$1.9 billion ($1.86 billion) stake in two ventures, and China Petrochemical Corp. paying $4.65 billion for a stake in Syncrude Canada Ltd.
“We’ve drilled a large number of wells, about 400 wells, we’ve had the reserves documented and we’ve built up geological models for the area, we’re about to start production, so we’ve reached a stage where we can document the values we’ve created and so we decided the time was right” to sell, Statoil’s Peter Mellbye said on the phone from Oslo today.
Herbert Smith LLP, which advised Bangkok-based PTTEP on the acquisition, said in an e-mailed statement the oil sand deposits held an estimated 2.7 billion barrels of bitumen resources. Mellbye said that while Statoil doesn’t provide its reserve estimates for the project, “third parties involved” in the sale process had estimated them at 2.5 billion to 3.7 billion barrels.
“The transaction values the whole project at $5.7 billion or 10.8 kroner per share for Statoil,” Oslo-based Pareto Securities ASA, whose analyst Thomas Aarrestad has a “buy” rating for Statoil, said in a note today. “This is significantly more than what Statoil has invested in the project, which we estimate to around $3.4 billion or 6.4 kroner per share.”
PTTEP will use cash flow and loans to fund the acquisition, Prasert Bunsumpun, chief executive officer of parent PTT Pcl, Thailand’s biggest energy company, told reporters in Bangkok. Mellbye said Statoil hadn’t decided what to do with the capital raised.
The Thai explorer’s shares dropped as much as 1.9 percent to 180 baht in Bangkok today. The benchmark SET Index fell 1 percent. Statoil gained 2.2 kroner, or 1.8 percent, to 126.7 kroner as of 12:21 p.m. in Oslo. The benchmark OBX index fell 0.8 percent.
Statoil in 2007 bought North American Oil Sands Corp. for about $2 billion to tap an area estimated to hold the largest oil reserves outside Saudi Arabia. Bitumen, the semi-solid crude beneath northeastern Alberta’s boreal forest, will be the base of the largest single source of U.S. oil imports this year, according to industry consulting group, IHS CERA.
The Kai Kos Dehseh project has five core areas — Leismer, Corner, Thornbury, Hangingstone, and South Leismer — which will be developed in stages, according to a PTTEP statement. The Leismer area will have an initial gross production of 10,000 barrels a day by early 2011, and the five areas could ultimately produce 300,000 barrels a day, the company said.
“The partners brought in at both Peregrino and in the oil sands could push Statoil to move the developments faster,” Gudmund Halle Isfeldt, an analyst at DnB NOR ASA with a “buy” recommendation said on the phone today. “It could help them reach even higher production. It will also help them make investment decisions with more confidence, now that they’re sharing the financial burden.”
Oil sand development in Canada has been challenged by high costs, which prompted Statoil in 2008 to scrap plans to invest in an upgrader. Mellbye said the company had no immediate plans to invest in an upgrader. The company expects to sell most of its production to U.S. refineries in the first instance, he said.
“The U.S. would be a natural market, but this is an area under constant development and there are lot of pipeline projects underway,” Mellbye said. “There’s been speculations about taking the bitumen westward to ship it to Asia, so this depends on the development of the infrastructure.”
While costs in Canada have gone down “somewhat,” there was a risk they may “rapidly rise again” given the International Energy Agency’s forecasts for growing demand for oil sands, Mellbye said. The company has yet to make an investment decision on moving onto the next phase of the Kai Kos Dehseh project, called Corner, which would start output in 2016.
Global crude output probably peaked in 2006, and increasing demand will have to be met from forms of oil such as tar sands that are more difficult to extract, IEA’s Chief Economist Fatih Birol said earlier this month.
Organizations including the Sierra Club, Greenpeace and Pembina Institute oppose oil-sands mining on grounds that toxic waste and carbon emissions from oil processing that contribute to global warming.
The Thai explorer may seek further acquisitions, Daiwa’s Loh said. “The Chinese have deeper pockets and in that sense you wouldn’t want to compete with the big boys, but they may look for slightly smaller opportunities.”
Countries where PTTEP may seek acquisitions include Australia, Indonesia and Vietnam, Chief Executive Officer Anon Sirisaengtaksin has said.
PTTEP, 65 percent owned by PTT, is the operator of the Montara well in the Timor Sea that leaked oil off northwestern Australia from Aug. 21 and Nov. 3 last year. The Australian government is due to release the findings of an investigation into the spill by the end of the year.