Canadian Natural Resources Buys Devon Energy Assets in Canada -- Update

By Dow Jones Business News, 
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By Chester Dawson and Judy McKinnon

CALGARY-- Canadian Natural Resources Ltd. agreed on Wednesday to buy Devon Energy Corp.'s Western Canadian natural gas and light oil assets for 3.125 billion Canadian dollars ($2.85 billion), making a big bet on gas prices.

Calgary-based Canadian Natural, or CNRL, one of Canada's largest oil and gas producers, said the deal will increase its total production by 11% to about 780,330 barrels of oil equivalent a day and add 2.2 million acres of undeveloped land near its existing properties.

The assets produce about 383 million cubic feet a day of natural gas, 10,800 barrels a day of light crude oil and 12,000 barrels a day of natural-gas liquids. The purchase excludes Devon's heavy-oil operations in Alberta and natural gas-rich assets in the Horn River area of northeastern British Columbia.

For Devon, the sale is part of a repositioning of the Oklahoma City-based company toward oil and away from its roots as a natural gas producer amid a multiyear slump in gas prices.

In November, it bought GeoSouthern Energy Corp.'s assets in the Eagle Ford oil play in south Texas for $6 billion. Devon said Wednesday that the sale of its Canadian assets, which it had put on the market late last year, will help repay debt incurred to finance the Eagle Ford acquisition.

Wells Fargo Securities in a report said Devon's proceeds from the sale are "stronger than anticipated" and a sign the company is on track to reach its asset-sale targets. However, investor research firm International Strategy & Investment Group called the deal pricing a "giveaway" to CNRL.

In recent trading on the Toronto Stock Exchange, CNRL was up 4.7%, while Devon was up 3.4% in New York.

With nearly three-quarters of the Devon holdings representing natural gas, CNRL's move comes at a time when many energy companies in North America are seeking to pare down their gas exposure. CNRL itself had planned to shed some Western Canadian gas assets until it aborted a proposed sale last month. Company executives said the contrarian move reflects, in part, a stabilization in natural gas pricing in recent weeks.

CNRL Chief Executive Steve Laut said on a conference call that "2014 and potentially into 2015 looks like pretty strong gas pricing and that helps the metrics of this deal."

Mr. Laut said the Devon properties largely overlap with CNRL's existing core holdings and that scaling up will result in higher profits and lower costs.

The acquired assets are heavy in so-called natural gas liquids, or NGLs, such as propane, which command a premium to dry gas prices. But the deal also positions CNRL to potentially benefit from one or more proposed liquefied natural gas terminals planned for the coast of British Columbia. Although CNRL has no stake in any of a nearly a dozen Western Canadian LNG proposals, demand for natural gas could rise if any of the plants are built.

CNRL is best known for its heavy oil extracting oil sands operators in northern Alberta, but it is also one of the country's largest natural gas producers. The company has a history of zigging while rivals zag, snapping up out-of-favor assets in the expectation of higher prices.

In 1999, it bought out BP PLC's Western Canadian oil operations for C$1 billion at a time when crude prices were about $20 a barrel--about one fifth of the price of oil today.

CNRL said about 900 of Devon Canada's 2000 employees will transfer along with the assets, including both field and head-office personnel.

Write to Chester Dawson at chester.dawson@wsj.com and Judy McKinnon at judy.mckinnon@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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Referenced Stocks: CNQ , DVN

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