Statoil Moves Into Oilsands With NAOS Takeover

It’s the hollowing out of Canadian private equity: North American Oil Sands, owned by Paramount Resources (POU-T, PRMRF-O), the Ontario Teachers’ Pension Plan, and a number of energy funds, has agreed to a friendly takeover by Oslo-based Statoil (STO-N).

Perhaps that puts the matter a little darkly, but Statoil’s purchase will give the North Sea leviathan 1,129 sq. km of the central Athabasca oilsand area, less a little ownership dilution. And the most recent resource estimate on North American Oil Sands’ properties puts the contingent resource at 4.1 billion barrels of oil — not the size of the Big Two, but playing in the same league as most other major operators in the sands.

Statoil has offered $20.00 per share for North American, valuing the company at $2.2 billion. Paramount — which traded into its 31% share in North American by putting its Athabasca landholdings into the North American land package — and the teachers’ pension fund, plus a number of funds holding shares in North American, have locked up their holdings to the deal, giving Statoil a 69% head start on the takeover process. The merger agreement will require regulatory approval, but the parties expect it to close in the second quarter of the year.

What has brought Statoil to the Athabasca, though, is not just the virtues of the North American project. It was one of the companies working on heavy oil projects in the Orinoco basin of eastern Venezuela, projects where the Venezuelan government took over operation and at least 60% ownership at the beginning of May.

The government has given foreign oil companies until June 26 to negotiate terms to sell Petroleos de Venezuela (PDVSA) enough of the project to bring the state oil company’s interest to the 60% minimum figure. Most, including Statoil, have already signed agreements acknowledging the government’s right to nationalize, although ConocoPhillips (COP-N) is holding out; the government, in response, threatened to expropriate Conoco’s holdings, and, in a move that does not seem wholly a coincidence, has made a US$544-million claim on back income taxes from two projects where Conoco has an interest.

Faced with that, there is little mystery in Statoil’s interest in North American, which has consciously pointed out the minimal political risk in the Alberta project. Statoil itself alluded to that in its merger presentation, noting that the acquisition will “secure international operatorship for Statoil within (a country in the) OECD.”

The lower political risk is not the only attraction in the North American project. Centred about 160 km south of Fort McMurray, Alta., the ground is sandwiched between three existing Athabasca pipelines on the west and another proposed pipeline, the Waupisoo line, on the east. The resource estimate of 4.1 billion bbl. includes a 2.2- billion-bbl. estimate of recoverable reserves.

North American’s production studies indicate the reserve could be extracted at about 220,000 bbl. per day at peak production levels. North American plans to build an upgrader plant near Fort Saskatchewan, Alta., to process the bitumen it recovers.

The bitumen production would come from steam-assisted gravity drainage (SAGD) wells, where steam is injected via one network of wells and bitumen, liquified by the steam, and pumped out of a second network. Production from the Leismer field — where North American has already committed to a 10,000-bbl.-per-day demonstration project — could start in 2009.

The upgrader plant is an important part of North American’s plans, as it means North American will be able to sell a market-grade light sweet crude, rather than bitumen that is subject to either large discounts or high upgrading charges. The plant would also produce hydrogen gas and carbon dioxide — for heavy oil pumping or sequestration — and solvents that could be used in the SAGD process.

The projects carry heavy price tags; the SAGD systems will likely run around US$4.5 billion and the upgrader, US$9.9 billion. Production, though, matches the size of the Sincor project in Venezuela, where Statoil held only a 15% interest; here, presuming the takeover bid succeeds, it will hold 100%.

Statoil produced an average 1.1 million bbl. per day in 2006, slightly below its rate in 2005. The company made NKr 40.6 billion (US$6.3 billion) on revenue of NKr 425.2 billion (US$66.3 billion) in 2006, against 2005 earnings of NKr 30.7 billion (US$4.8 billion) on NKr 387 billion (US$60.1 billion) in revenue.