A Shell-led consortium is contemplating the expansion of LNG Canada, which operates a liquified natural gas facility and export terminal in Kitimat, B.C.Jennifer Gauthier/Reuters
Shell PLC SHEL-N is acquiring ARC Resources Ltd. ARX-T in a US$16.4-billion deal, boosting its holdings in a basin that supplies gas to LNG Canada as the British company mulls an expansion of a liquefied natural gas export terminal it partially owns in Kitimat, B.C.
The deal, announced Monday, will increase Shell’s production by roughly 370,000 barrels a day. ARC is the largest pure-play producer in the Montney basin, which straddles Alberta and northeast British Columbia. Its portfolio includes natural gas, condensate, natural gas liquids and crude oil. Those operations are in the same region as Shell’s existing Groundbirch asset in B.C. – which supplies gas to the LNG Canada liquefaction plant – and its Gold Creek project in Alberta.
Analysts said the deal underscores the attractiveness of Canadian assets – particularly those in the liquefied natural gas sector. Demand for the fuel is surging, in part owing to the push for natural-gas-fired electricity to power data centres that run artificial-intelligence models.
Wael Sawan, Shell’s chief executive, said in a statement that the acquisition would establish Canada as “a heartland” for the company and complement its existing footprint in the country.
LNG Canada gas flaring far exceeding permitted volumes, documents show
But it also marks something of a turnaround for Shell on the fossil fuels front. Last year, the company exited the Alberta oil sands, swapping its remaining 10-per-cent interest in the Albian mine in the province’s north for a greater stake in an upgrader and carbon-capture project outside Edmonton. Shell attributed that decision to its strategy of moving toward assets with lower greenhouse gas emissions.
Monday’s announcement comes as a Shell-led consortium contemplates the expansion of LNG Canada. Shell holds a 40-per-cent share in the asset, whose liquefied natural gas can reach Asian buyers faster than most other North American suppliers.
While there has been no final investment decision made on the second phase of the terminal, it is on the list of five projects that Prime Minister Mark Carney has said will be reviewed for fast-track approval under Ottawa’s Building Canada Act.
Expanding Canada’s oil and gas exports has come into sharp focus recently, as the conflict in Iran shakes up the structure of energy markets and countries that face a severe supply crunch look for stable supplies.
Between the world’s hunger for gas to displace coal – particularly in Asia – and Shell customers seeking diversified energy supplies, Canada is in a strong position to take advantage of the global LNG market, Mr. Sawan told The Globe and Mail in September.
The deal announced Monday combines Calgary-based ARC’s more than 1.5 million net acres with the British company’s 440,000 acres in the Montney formation and adds roughly two billion barrels of proved and probable oil reserves to its books. ARC’s proven and probable gas reserves can also “support Shell’s growth in LNG Canada,” Shell said.
ARC CEO Terry Anderson said in a statement he’s pleased that the company’s “assets and world class people will play an important role in helping Shell to further strengthen Canada’s resource landscape whilst also providing the secure energy that the world needs.”
National Bank of Canada had already flagged ARC as a takeover candidate, analyst Travis Wood said in a Monday research note. The company is a strong operator with a vast undeveloped inventory, he added, which will likely be accelerated given Shell’s access to global markets.
“This deal clearly signals a compounding benefit to the Canadian gas market with global integrated names showing an appetite for Canadian resources, which we haven’t seen in a while,” Mr. Wood said.
More consolidation in the region is likely for three reasons, he wrote: Chatter around increasing Canadian energy exports into a world hyperfocused on energy security and supply; a wave of LNG projects coming online on B.C.’s West Coast in the coming years; and the continuing thesis of product scarcity in the region.
Scotiabank analysts said in a research note that the deal could increase investor interest in other large Montney producers such as Tourmaline Oil Corp., Whitecap Resources Inc., which are both based in Calgary, and Denver-based Ovintiv Inc.
Related: Ovintiv, formerly Encana, to sell Anadarko assets for $3-billion
The acquisition boosts Shell from the seventh-largest producer in the Montney to second place, trailing only Ovintiv, said Andrew Dittmar, principal analyst at Enverus Intelligence Research.
Between the high-quality gas in the Montney and crude in the oil sands, Canada represents one of the world’s “most attractive opportunities,” Mr. Dittmar wrote in an a note Monday.
Under the terms of the agreement, ARC’s shareholders will receive $8.20 in cash and 0.40247 ordinary shares of Shell for each ARC share. Shell will also take on roughly US$2.8-billion of ARC’s net debt and leases.
TD Cowen equity research analyst Aaron Bilkoski wrote Monday in a note that the likelihood of a competing offer for ARC is relatively low, adding that the assets could become more valuable should LNG Canada Phase 2 move forward.
Shell will hold an investor call about the deal on Tuesday morning.