Thailand’s PTT Exploration & Production is taking advantage of the strong baht to buy a $2.28 billion stake in a Canadian oil sands project from Statoil.
The investment is a record for a Thai company overseas and will give PTTEP 40% ownership of the Kai Kos Dehseh project. Norway’s Statoil will keep the remaining 60% stake and continue to operate the project, which it bought in 2007 from North American Oil Sands.
The two companies will share management responsibilities and PTTEP will have first right of refusal if Statoil chooses to sell down its stake.
In a conference call with investors last night, chief executive Anon Sirisaengtaksin said that PTTEP will pay Statoil in cash when the deal becomes effective on January 1, 2011.
He added that PTTEP plans to fund part of the costs of the acquisition with a bond issue of up to $700 million, but that it can also make use of $1.6 billion in credit lines if the bond market window closes. The rest will be paid out of the $1.5 billion of cash on its balance sheet.
Oil is not yet flowing from the first area being developed, known as Leismer, but PTTEP is expected to start booking revenues at a rate of 10,000 barrels a day in early 2011. Anon said it will take around 40 years to recover all the oil and the company is targeting peak production of more than 300,000 barrels a day once all five areas are fully operational.
The other sites -- Corner, Thornbury, Hangingstone and South Leismer -- will be developed in stages, with Corner already underway and scheduled to start production in 2015, when the total oil flow is expected to be around 50,000 barrels a day, rising to 150,000 barrels by 2020.
PTTEP is the first Thai company to expand into oil sands, a move that Anon said is necessary given the difficulty of sourcing large reserves in conventional oil and gas fields. The company also considered oil fields located deep underwater, but opted against that approach because of the risks involved. The BP spill, presumably, was instrumental in helping form that opinion.
Kai Kos Dehseh is a large oil sands deposit in Athabasca, Alberta, covering an area of more than 1,100 square kilometres. According to PTTEP, the sands could yield up to 4.3 billion barrels of heavy crude oil, which is almost double the estimate in 2007, when Statoil paid $2.2 billion for the project. Since then, it has drilled more than 300 wells and expects continued technological developments to increase the amount of oil it can recover during the life of the project.
Statoil uses a technique known as steam-assisted gravity drainage to produce oil from the tar sands, which involves drilling two horizontal holes into the deposit, one a few metres above the other, and injecting steam into the higher hole. This heats up the oil, which is thick and gloopy under the ground, and encourages it to drain into the lower wellbore.
PTTEP is keen to gain the technical knowhow to exploit these types of reserves because of the vast potential in Canada’s oil sands, which are claimed to be the biggest crude reserves outside Saudi Arabia.
The oil produced from the wells is classed as West Canadian Select, which sells at a discount of roughly 13% to West Texas Intermediate. It will mostly be sold into the US mid-west.
J.P. Morgan acted as financial adviser to PTTEP.
