Canadian Natural Resources calls off hunt for Montney shale deal

CALGARY – Canadian Natural Resources Ltd. is calling off its hunt for a buyer or partner in the natural gas-rich Montney region of northeastern British Columbia, opting instead to keep its vast resource base there.

The oil and gas producer (TSX:CNQ) said it had received “a number of expressions of interest” in the assets since putting them on the market early last year, but none were good enough to merit a deal.

“As such, the company has elected to retain the acreage, maintaining one of the largest Montney land positions in Western Canada with over one million net acres,” CNQ said in a statement Thursday.

The company announced last March it was looking a sale or joint-venture deal for the assets, which are in a part of northeastern B.C. that contains huge reserves of natural gas within shale rock formations.

It was seen as a bit of a departure for a company that has traditionally preferred to operate its assets solo rather than team up with other players.

CNQ said third-party evaluators estimate the company’s Montney lands contain about 6.7 trillion cubic feet of gas, one of the largest reserve holdings in Western Canada.

A number of other major energy companies have also been shopping around their land and infrastructure amid a period of low commodity prices — resulting in a crowded market.

“It’s been difficult and it will continue to be difficult for the foreseeable future,” said Clinton Roberts, Alberta deals leader for financial services and consulting firm PwC in Calgary.

Natural gas prices in Western Canada are expected to remain under $5 per 1,000 cubic feet for the next three to five years, he said.

Buyers are still interested in snapping up natural gas assets — just not at the price sellers are hoping to get.

For producers of oil looking to sell, it’s a much brighter picture, said Roberts.

“There’s less of a price gap between buyers and sellers. So on the oil side, we still think there’s deals to be done,” he said.

“It’s just the gas market will continue to be challenged for the near term.”

Barry Munro, who leads EY’s Canadian oil and gas practice, said would-be buyers may hold off until it’s clear B.C. natural gas can be shipped across the Pacific, in liquid form, to Asian markets ravenous for energy.

“Until they’re confident that there’s going to be a viable Canadian LNG marketplace, some guys don’t want to be long on gas,” he said.

Federal foreign investment rules introduced in late 2012 — following takeover bids for Nexen Inc. and Progress Energy by Chinese and Malaysian state interests, respectively — may also kept some buyers on the sidelines.

Although those rules were meant to limit foreign ownership in the oilsands, many international companies still have a “great number of questions” when it comes to whether their plays for other types of resources will be embraced.

“Most definitely the Canadian investment rules have caused foreign buyers to look at Canada cautiously as they try to understand the regulatory environment and what that means,” Munro said.

Some deals may have also failed to materialize because joint venture partners don’t see eye to eye on the pace of spending to develop their resources, he added.

In November, Talisman Energy Inc. (TSX:TLM) — under pressure from investors to pare its holdings — managed to sign a $1.5-billion deal with the Canadian unit of Malaysia’s Petronas for its Montney gas holdings.

Progress Energy Canada Ltd. will be buying more than 51,000 net hectares of land in the Farrell Creek and Cypress areas of the Montney that Talisman owns through a 50-50 partnership with South Africa’s Sasol. The all-cash deal also includes interests in wells, pipelines and processing plants.

If the deal closes as planned and Sasol doesn’t exercise its right of first refusal for the assets, the Malaysian and South African companies would be partners in the Montney.

Petronas, which acquired Calgary-based gas producer Progress in late 2012, has said it intends to invest up to $11 billion in a liquefied natural gas export terminal near Prince Rupert, B.C., where the natural gas will be chilled into a liquid state and sent to lucrative overseas markets by tanker.