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resourceinvestor.com: Norway’s Statoil Grabs North American Oil Sands

By Dina O’Meara
27 Apr 2007 at 04:11 PM GMT-04:00

CALGARY (CP) — Norway’s state-owned oil company is spending C$2.2 billion to acquire major oil sands leases in Northern Alberta, giving the company a foothold in one of the world’s hottest energy regions.

Statoil ASA [NYSE:STO] said early Friday it is buying North American Oil Sands Corp., a private Calgary company with oil sands prospects in the Athabasca region around Fort McMurray for C$20 a share, a deal worth C$2.2 billion.
 
The transaction continues a trend of global expansion into the oil sands region, which contain huge new sources of oil but can be extracted at higher costs than conventional production.

French, Chinese and South Korean companies have already joined big foreign-owned multinationals such as Imperial Oil [TSX:IMO; AMEX:IMO], Shell Canada [TSX:SHC] and Husky Energy [TSX:HSE] in the oil sands. Canadian oil patch giants such as Petro-Canada [TSX:PCA; NYSE:PCZ], Suncor Energy [TSX:SU; NYSE:SU], Nexen [TSX:NXY; NYSE:NXY] and EnCana [TSX:ECA; NYSE:ECA] already have significant oil sands projects.

In Friday’s deal, North American Oil Sands’ board of directors said it has unanimously approved the offer, which is expected to close in June. The company’s major shareholders, directors and officers, have agreed to tender their shares.

”Today’s acquisition is an important strategic move which supports our global growth ambition and increases our reserve bookings in the long term,” Helge Lund, chief executive of Statoil, said in a release.

”We are developing our global heavy oil portfolio and strengthening our marketing position in North America.”

North American Oil Sands is a privately traded company founded in 2001. Its major shareholders include Paramount Resources Ltd. [TSX:POU], funds managed by affiliates of ARC Financial Corp. and the Ontario Teachers’ Pension Plan, Canada’s second biggest pension fund manager with assets of C$106 billion.

Paramount said Friday it has agreed to tender to the Statoil bid and sell its 30.9% interest for about C$682.4 million.

Including Paramount, holders representing a 69% stake entered into lockup agreements to tender.

Projects in the Alberta oil sands have become known for their cost overruns as much as for their massive resources, second only to Saudi Arabia.

But despite the additional risk of new environmental legislation, which promises to hike production costs of the sticky bitumen, the region represents a secure investment in an energy-hungry world, one analyst said.

”You have to go where the resource is,” said Mark Friesen of FirstEnergy Capital.

” In many ways, companies are willing to look at the oil sands-specific risks in exchange for lower geologic and political risk.”

North American Oil Sands operates 1,110 square kilometres of oil sands leases in the Athabasca region northeast of Edmonton. The company is working on a pilot project to produce extra heavy oil from oil sands deposits in what Statoil described as unconventional sources of crude that are becoming increasingly important.

The Calgary company is developing the Leismer demonstration project, which has a capacity of 10,000 barrels of tar-like bitumen a day, with first production expected by early 2010.

The first phase of the commercial project, Kai Kos Dehseh, is planned to come on stream in 2011, ramping up production to 100,000 barrels a day by 2015 and more than 200,000 barrels a day by 2020.

State-controlled Statoil has experience producing heavy oil from sand in projects in Venezuela. Statoil said North American Oil Sands holds leases with estimated reserves of 2.2 billion barrels of oil, which the Norwegian company hopes will eventually yield 200,000 barrels per day of oil.

”We will utilize our experience in developing resources in a sustainable manner, applying technology solutions that minimize environmental impact,” said Lund, adding that his company has ”key competencies such as improved oil recovery and large project execution skills.”

In the last two years, energy companies from France, China, The Netherlands, and the United States have all made major acquisitions in the region and there are expectations that companies from India, Italy and elsewhere will also enter the region.

But with more than C$100 billion worth of projects slated for construction in the next decade, the overheated economy of northern Alberta is also facing severe upward cost pressures, labour shortages and escalating environmental concerns, which could slow down regulatory approvals for new projects.

Chinese energy companies already have small stakes in oil sands projects, including refiner Sinopec Group’s 40% share of the Northern Lights oil sands project, operated by Synenco Energy Inc. [TSX:SYN] and CNOOC’s [NYSE:CEO] 17% stake in junior oil sands player MEG Energy Corp.

Two years ago, French energy giant Total S.A. acquired junior oil sands company Deer Creek Energy Ltd. and quickly unveiled plans to spend upwards of C$9 billion to build an upgrader in Alberta and produce 200,000 barrels per day by 2015.

And last year, California-based Chevron Corp. announced its intention to build a multibillion-dollar oil sands project in northern Alberta, while South Korea’s national oil company bought oil sands leases from mining giant Newmont.

In trading Friday on the Toronto Stock Exchange, Paramount shares rose C$3.16 to C$24.75, a gain of 14.6%.

© The Canadian Press 2007

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