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Imperial Oil to market Canadian Montney, Duvernay assets

Highlights

Gross value of assets may top $1 billion

Will focus on key oil sands operation

Imperial Oil intends to market its oil and gas interests in XTO Energy Canada and ExxonMobil Canadian assets, although a definitive decision has not been made to sell them, Imperial said late Jan. 12.

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Imperial and ExxonMobil Canada each own 50% of XTO Canada, including assets in the Montney and Duvernay regions of central Alberta.

"This decision is part of Imperial's ongoing evaluation of its unconventional portfolio, and is consistent with its strategy to focus upstream resources on key oil sands assets," it said in a statement. "Operations will continue [normally] throughout the marketing process."

Based on recent transactions, the full asset base could be worth $30,000-$35,000 for every b/d of oil equivalent or $970 million to $1.13 billion gross, Eight Capital Research analyst Phil Skolnick said in a Jan. 13 note.

That would equate to $485 million to $565 million net, which is 1.5%-1.8% of IMO's total enterprise value, Skolnick said.

"This does not come as a surprise given that Imperial announced in November 2020 its decision to no longer develop the non-producing, undeveloped portion of its unconventional asset base," he said.

Imperial and ExxonMobil Canada have hired RBC Capital Markets as their financial advisor in connection with the marketing process.

Assets include 568,000 net acres in the Montney shale, 85,000 net acres in the Duvernay shale, and additional acreage elsewhere in Alberta. Net production from the assets total about 9,000 b/d of crude, condensate and NGLs, and 140,000 Mcf/d of natural gas.

Producers have realized the value of Montney/Duvernay assets in recent years and have moved to acquire them.

ConocoPhillips, for example, made a $375 million acquisition of Montney assets from Kelt Exploration at the height of the coronavirus pandemic in mid-2020, as WTI oil prices were at low levels in the $40s/b and Canadian WCS in the low $30s/b. WTI is now slightly above $80/b and WCS in the high $60s/b.

That purchase, which bulked up ConocoPhillips' existing position in the play, came with 140,000 net acres and more than 1,000 potential well drilling locations. At the time, the company was just bringing its first Montney wells online.

Current oil production from Canada's Duvernay basin is about 196,000 b/d while the Montney is around 113,000 b/d. The Duvernay's oil production should increase to 293,500 b/d in January 2024 and 326,000 b/d in January 2026, while the Montney will also ramp up.

It is slated to produce about 177,000 b/d in early 2024 and 200,000 b/d in early 2026, exiting that year around 208,000 b/d.

For natural gas, the Duvernay currently produces about 4.8 Bcf/d of gas while the Montney's output is 7.2 Bcf/d. The Duvernay should increase to 4.9 Bcf/d in 2024 and roughly stay there through 2026, while Montney gas output should climb to just shy of 8 Bcf/d in early 2024 and exit 2026 at 8.9 Bcf/d.