Looks like higher oil prices have triggered renewed interest in Canada's oil sands. Earlier this week, UK energy giant BP Plc (NYSE:BP) announced that it had bought a major interest in the Terre de Grace undeveloped oil sands property in northern Alberta. While the final price will depend on follow-up exploration to determine the full size of the property's reserves, a major plus for the property is the fact that is has regulatory approval to develop a 260,000 barrel per day upgrader on the site.
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The deal was struck with private operator Valuation Creation which acquired the property in 2008 in a bankruptcy proceeding. The company owns another oil sands project, in this case an upgrader, which also went into bankruptcy protection when the viability of the sector was undermined after oil prices collapsed last year.
Billion Dollar Deals
This partnership appears to mirror the deal BP struck with Canadian oil sands operator Husky Energy (TMX:HSE) back in 2008. In that deal, BP invested $2.5 billion to acquire a 50 percent interest in an oil sands property with an estimated 3.7 billion barrels of total reserves. Plans call for the development of a 200,000 barrel per day development facility. If similar reserve numbers are forthcoming from the Terre de Grace property, BP capital commitment is likely to be on a similar scale.
Activity on the Rise
This latest deal is yet another in a series of developments out of the oil sands in recent months. Last week, gas producer Devon Energy (NYSE:DVN) payed $500 million to buy a 50 percent interest in BP's Kirby oil sands property. Earlier this month, French oil major Total S.A. (NYSE:TOT) announced that it would proceed with development at its Joslyn Creek project despite experiencing major setbacks with the property. Production is targeted for 2017.
In another sign of renewed commitment to the oil sands, Total and partner ConocoPhillips (NYSE:COP) agreed in January to ramp-up the production target for their jointly owned Surmont project to 110,000 barrels-a-day from the early target of 27,000 barrels-a-day by 2015. In December 2009, Chinese oil major PetroChina (NYSE:PTR) paid $1.8 billion to acquire a 60 percent stake in Athabasca Oil Sands Corp.'s MacKay River and Dover oil- sands projects. As part of its end of the deal, Athabaska Oil Sands has announced that it will raise $725 in an Initial Public Offering (IPO), the largest capital raising in Canadian equity markets in several years.
The Bottom Line
After last year's collapse of interest in the oil sands, these recent deals are signaling a major revival of interest in the sector. Moreover, given the huge capital investments and long lead time required to bring this production on-stream, the other clear signal to be gained from all this is that a lot of big players are now willing to bet major dollars that oil price will move significantly higher in the years ahead. (Before jumping into this hot sector, learn how these companies make their money. Refer to Oil And Gas Industry Primer.)
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