CALGARY — Husky Energy Inc. has agreed to buy natural gas lands in west-central Alberta that could be worth as much as half a billion dollars, doubling its operations in the region as it focuses on boosting near-term production growth.
“This agreement represents an important step in executing that strategy,” chief executive officer Asim Ghosh said Wednesday in a statement.
Husky (TSX:HSE) said the acquisition will add 65 million cubic feet per day to its gas production, as well as 37 million barrels of oil equivalent in proven reserves and 11.7 million barrels in probable reserves.
The transaction will contribute nearly 65,000 hectares to the company’s holdings in the area, where Husky currently produces 50 million cubic feet of gas per day.
The company did not disclose the seller, but Talisman Energy Inc. (TSX:TLM) has put some of its assets in the same region on the block as it hones its focus on unconventional gas plays.
Husky also did not disclose the price tag but BMO Capital Markets analyst Randy Ollenberger said the deal could be worth between $400 million and $500 million, based on what similar transactions have fetched.
“I think they’re trying to refocus back on their Western Canada operations and stabilize the decline we’ve seen from there,” he said.
The purchase will enable Husky to make better use of its Ram River Gas Plant, which will process a big portion of the production the company is gaining through the deal.
“This is an important acquisition that adds to our natural gas production and reserves in an area where we have significant gas gathering and processing infrastructure,” said Ghosh, who became CEO this summer.
“The terms of the deal provide an attractive rate of return at today’s natural gas prices and offer Husky significant upside potential.”
John Stephenson, a portfolio manager at First Asset Investment Management, said he questions Husky’s decision to buy into natural gas right now, given the bleak price outlook for that commodity.
“This is not the environment to be buying gas assets in,” he said.
“It’s hard to see the logic on the surface of the transaction.”
The purchase comes days after an energy-focused investment bank said it was “abandoning hope” in a natural gas price recovery over the next two years.
FirstEnergy Capital cut its 2010 price forecast by 40 cents to US$4.63 per 1,000 cubic feet, its 2011 forecast by a full dollar to US$4.75 and its 2012 forecast by US$1.25 to US$5.
“Placing money in the natural gas investment space, aside from special one-time circumstances, is likely to be dead on arrival,” analyst Martin King wrote in a research note.
Husky, majority owned by Hong Kong billionaire Li Ka-Shing, is active in Western Canada, off Canada’s East Coast, in the United States and in Southeast Asia. It has said it plans to spin off its Asian assets into a new company.
The company is also a major heavy oil and oilsands company through its Tucker and Sunrise projects. and operates a string of Husky-branded gasoline stations, primarily in Western Canada.
Husky, with nearly 4,300 employees at the end of last year, also operates refineries in Canada and the United States.
The former CEO John Lau stepped down earlier this year after a 17-year tenure to head up Husky’s Asian business.
Husky shares rose 17 cents to C$25.01 on the Toronto Stock Exchange in Wednesday afternoon trading.