Alberta asset sale not a sign of Petronas leaving Canada

The company’s official position is that it’s not exiting from the Canadian upstream market entirely

by MARK RAO / Pic By MUHD AMIN NAHARUL

Petroliam Nasional Bhd’s (Petronas) action to dispose of selected assets in Canada does not reject the total abandonment of the state-owned energy company venture in Northern America.

The national oil company is selling certain assets in Alberta, Canada, but the disposals are primarily due to the dim prospect for Canada’s liquefied natural gas (LNG) sector, external headwinds, higher costs and rising competition.

BMI Research oil and gas (O&G) analyst Peter Lee said Petronas’ official position is that it is not exiting from the Canadian upstream market entirely.

“Petronas is still keen to monetise gas resources in Canada,” Lee told The Malaysian Reserve.

“The assets being considered for sales are reportedly oil-heavy and located too far from the western coastline to underpin potential LNG export ventures in the future.”

He said that such export plans would require stronger global LNG prices which would be unlikely to materialise in the short to medium terms.

News reports suggest that Petronas plans to sell O&G drilling rights, wells, pipelines and three gas process plants primarily located in the north- western region of Alberta via its unit Progress Energy Canada Ltd.

The asset is said to have a base production rate of approximately 5,500 barrels of oil equivalent per day and includes over 400,000 gross acres in Alberta’s Deep Basin region with a 63% working interest.

Reports cited financial advisory firm BMO Capital Markets, which was hired by Petronas to assist in the asset sale that expects bids by early next month.

The sales of these assets came three months after the energy company pulled the plug on the C$36 billion Pacific NorthWest LNG project back. Cancellation of the project had heightened speculation that Petronas may exit Canada altogether.

Petronas invested C$5.2 billion (RM17.63 billion) in the facility located in British Columbia (BC) via Progress Energy in 2012.

Lee expects the proceeds from the sale of the Alberta asset would be used to channel to the company’s ongoing operations in Canada.

“The money raised from the sales will likely be re-invested to advance the firm’s ongoing drilling works at North Montney, BC, where the firm has already drilled 215 exploration wells focusing on natural gas,” he said.

He however, warned that the outlook for Canada’s LNG sector remained bearish.

“Although 35 LNG terminals have received export approval from the National Energy Board, the vast majority of these will fail to gain traction, due to headwinds including regulatory delays on environmental grounds, rising equipment and labour costs, and ample competition in the global LNG market.”

The aborted Petronas-led Pacific NorthWest LNG project followed the cancelled Prince Rupert LNG facility, also located in the BC region and which occurred earlier in March this year.

Many O&G analysts are also anticipating new LNG supplies from Australia and the US will worsen the glut, and demand and supply will only balance in 2024 or 2025.

Final decisions on any large scale LNG project investment is expected after 2019.