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Conoco's Canadian Play Continues

Conoco's Canadian Play Continues

Conoco Inc.'s Canadian midstream arm, Conoco Canada Limited, said last week it has acquired the bulk of Petro-Canada's natural gas liquids (NGL) business, including the fifth largest natural gas processing plant in North America, for an undisclosed sum. Closing on the purchase is scheduled to be completed in the second quarter of 2000.

"This addition to our portfolio increases Conoco's total net natural gas liquids production in Canada, the U.S. and Trinidad by 65%, to 105 million b/d, and triples net processing capacity to 3.4 Bcf/d, while reducing per barrel overhead and operating costs by 24%," said Mike L. Johnson, vice president and general manager of Conoco's natural gas and gas products business unit.

Through the deal, Conoco acquired 92% operating interest in Petro-Canada's 2.4 Bcf/d Empress natural gas processing plant near Medicine Hat, AB, the 580-mile Petroleum Transmission Company (PTC) pipeline that extends from Empress to Winnipeg, six related pipeline terminals and a storage facility. The Empress plant has an NGL production capacity of 48,000 b/d.

Johnson said the Petro-Canada acquisition is Conoco's latest effort to move away from a midstream business of scattered assets in mature basins towards a more profitable business built on centralized, large-scale gas processing systems.

In addition to acquiring the assets, Conoco will operate and manage Petro-Canada's NGL wholesale supply and marketing operations, and employ almost all of the 140 Petro-Canada NGL-related employees in Calgary, the Empress plant, PTC pipeline system and field offices in Tulsa and Sarnia, ON.

The acquisition includes major agreements for Conoco to provide all NGL services for Petro-Canada's upstream operations in Western Canada and for Petro-Canada's refineries in Edmonton, AB, Oakville, ON and Montreal, PQ.

"This acquisition is a large step in our program to economically upgrade our portfolio of North American natural gas processing and natural gas liquids assets, and follows the recently announced sale of midstream properties in Oklahoma and West Texas," said Rob McKee, Conoco's executive vice president for global exploration production. "The Petro-Canada acquisition augments our existing Canadian assets that were recently expanded through an acquisition of natural gas producing properties from Renaissance."

A rigorous rationalization program of gas gathering and processing assets during the year resulted in the asset sales in Oklahoma. Conoco sold the assets to Duke Energy last January (see NGI, Jan. 10). The Renaissance Energy assets, purchased in late 1999, more than doubled Conoco Canada's gas reserves and increased daily gas production by 60%.

For Petro-Canada, the transaction will result in an after-tax gain of $95 million, most of which will be included in earnings for the first quarter. The gain is subject to adjustments the company said. "This asset sale continues our program of divesting non-core assets," said Ron Brenneman, president of Petro-Canada. "In the upstream, we are continuing to narrow the focus of our core businesses to Grand Banks offshore oil development, oil sands and natural gas in western Canada."

The Petro-Canada agreement also includes Conoco's purchase of Petro-Canada's non-operating fractional interests in the Cochin Pipeline and its associated storage, treating plants and terminals; the Dow-operated Fort Saskatchewan propane-plus fractionator; and the Rimbey Pipeline. Those interests are subject to other companies' rights-of-first-refusal.

Joe Fisher, Houston

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