The emergence of Canadian gas divestments
Challenges and success factors
Over the last two years, we’ve seen a marked increase in the number of gas divestments taking place in Canada’s oil and gas sector. A number of forces are driving companies to shed assets and rethink their business strategies and portfolio management approach.
Driving these decisions are uncertain natural gas prices, sustained high oil prices, an increase in North American gas production, reduced gas demand from the US, and market access challenges.
The majority of analysts agree that North American natural gas prices will continue to remain flat ver the next several years. Henry Hub natural gas prices have hovered around $4/mmbtu — with the exception of an increase during January–March due to cold weather across North America. The forward curve for AECO — the Alberta gas trading benchmark — for gas delivered within Alberta remains in the $3.50–$4.00 range with no real signifiant gains even in the high price scenario.
The massive gas resource base driven mainly by the shale gas revolution unfolding in North America is in part responsible for creating this downward pressure on gas prices. Increased well productivity in major plays across the continent is contributing to abundant gas supplies across North America. Marcellus, Horn River, Montenay and Utica, to name a few, are expected to grow to 25% of North American supply.
Divestment deals are a balancing act between competing buyer and seller demands. Buyers and sellers must agree on common goals and align and understand each other’s motivations to ensure success.