Relatively cheap natural gas feedstock and a stronger political environment are key factors behind Shell's $22-billion acquisition of ARC Resources, one of the largest deals in Canadian oilpatch history. The transaction, announced Monday, signals a major reversal of foreign capital flight from Canada's upstream energy sector, according to industry leaders.
Positive Signal for the Gas Sector
Michael Belenkie, CEO of Advantage Energy, described the deal as a "huge shot in the arm" for the industry. "What it means is the reversal of the decades-long exodus of foreign capital from Canada — at a scale that we’ve never seen before in the upstream business," he said Tuesday. "It’s a great sign."
Hue Tran, vice-president of business development and marketing at Birchcliff Energy, noted that the transaction sends a strong message about the future of natural gas in Canada. "There were concerns about the regulatory process and appetite for investment in our basin. The fact that you have a large player now taking an interest opens the door for more investment," he said. "You have a large player now signalling that they have a positive view on the Canadian gas story."
Shell's Strategic Move
Shell announced Monday it struck a friendly agreement to acquire Calgary-based ARC Resources in a cash-and-stock deal. On Tuesday, Shell CEO Wael Sawan told analysts the supermajor had been eyeing ARC for more than two years, citing its high-quality properties in the Montney formation, including areas where Shell already has existing assets.
The deal could improve the likelihood of Phase 2 of the LNG Canada project moving forward. Shell is the largest joint venture partner in the LNG Canada project near Kitimat, B.C., which started up last year. The consortium is evaluating a proposal to double production, which would require about two billion cubic feet per day of feed gas.
Sawan spoke about the changing environment in Canada as LNG Canada partners contemplate a final investment decision, expected later this year. The Carney government has been promoting LNG and aims to turn Canada into an energy superpower. Shell's CEO also referenced the discounted price of natural gas feedstock available in the country. Western Canadian gas traditionally trades below benchmark U.S. Henry Hub prices; according to TD Cowen, benchmark Alberta AECO spot prices closed Monday below US$1 per million British thermal units (mmBTU).
Overall, the acquisition is seen as a positive indication for Canada's hard-hit gas sector, which has endured years of low prices, and could attract further foreign investment.
