Canada Faces Commodities Squeeze

Terry Flanagan

Canada, rich in natural resources, is facing a decrease in demand especially in the energy sector, where it operates as a major oil producer and supplier to its neighbor to the south.

“Americans have been the world’s leading consumer of energy products,” said Robert Young, CEO of Liquidnet Canada. “The general drive toward self-sufficiency has decreased oil exports from Canada. Our principal market is becoming more self-sufficient, which drives down demand for Canadian oil.”

Because commodities are traded mostly over the counter, it’s difficult to get a handle on the levels of commodities trading in Canada, but Young believes that volumes are depressed.

“Any market has an ebb and flow, whether its stocks, bonds, currencies, commodities,” he said. “There are natural holders and purchasers. When there’s lots of activity between holders and purchasers, there are lots of opportunities for intermediaries as well. Right now, commodities markets are quiet relative to what they were in 2010 and 2011, and as a result the intermediaries are also quiet.”

On Wednesday, Canadian Natural Resources Limited announced its acquisition of Devon Canada’s Canadian conventional assets, excluding Horn River and the heavy oil properties, for an aggregate cash consideration of $3.125 billion. The acquired lands and production base are all located in Western Canada in areas adjacent or proximal to Canadian Natural’s current operations and are high quality, concentrated liquids-rich natural gas weighted assets, with additional light crude oil exposure.

The current estimated production, before royalties, from the acquired properties is approximately 383 mmcf/d of natural gas, 10,800 bbl/d of light crude oil and 12,000 bbl/d of NGLs and is approximately 72% operated. Along with the production are associated key strategic facilities including 6 major owned and operated natural gas plants, with gross processing capacity in excess of 1,000 mmcf/d, and 4 major owned and operated oil batteries.

“This acquisition fits our strategy of opportunistically adding to our existing core areas, where we can provide immediate value, with the opportunity to add value in the future,” said Canadian Natural president Steve Laut. “The acquired assets are largely operated, as are the owned facilities and infrastructure; and are a very good fit with Canadian Natural’s existing assets and infrastructure. The combined assets and infrastructure provide synergies to more effectively and efficiently operate once fully integrated.”

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