ExxonMobil Corp. has offered US$3.14 billion in a cash and debt deal to buy Celtic Exploration Ltd., a Calgary producer with a rich array of unconventional acreage spread across the Montney and Duvernay shales, as well as leaseholds in other formations in Alberta (AB) and British Columbia (BC). The offer that was announced on Wednesday has a cash value of about $2.6 billion, excluding debt.

The acquisition by unit ExxonMobil Canada would include 545,000 net acres in the Montney Shale and 104,000 net acres in the Duvernay. Production currently averages a total of 72 MMcf/d of natural gas and 4,000 b/d of crude, condensate and natural gas liquids (NGL). At the end of 2011 the property included 128 million boe of proved plus probable reserves (3P), of which 76% are natural gas and 24% are crude, condensate and NGLs.

ExxonMobil was one of the first to gain entry to BC’s Horn River Basin, an unconventional gas play, where it held close to 340,000 net acres in 2011 (see Shale Daily, Oct. 6, 2011). The producer also is the majority owner of Canada’s Imperial Oil Ltd., which has a big leasehold of unconventional properties across the country.

“This acquisition will add significant liquids-rich resources to our existing North American unconventional portfolio,” said ExxonMobil Canada President Andrew Barry. “Our financial and technical strength will enable us to maximize resource value by leveraging the experience of ExxonMobil subsidiary XTO Energy, a leading U.S. oil and natural gas producer which has expertise in developing tight gas, shale oil and gas and coalbed methane.”

Celtic, which was formed in September 2002, stated in an operational update last month that the management team remained optimistic about its future prospects, which have been trained on “exploration efforts in areas of multi-zone hydrocarbon potential.” The company’s 2012 production exit rate guidance is 29,900 boe/d; net capital spending this year is estimated at C$322 million.

Production for 2012 is expected to average 22,000-23,000 boe/d, and in 2013 output is forecast to be weighted 76% to gas and 24% to oil. “However, operating income in 2012 is expected to be weighted to 78% oil and 22% gas,” the company noted. “At the low end of the range of 2012’s average production forecast, this represents a 36% increase from average production of 16,212 boe/d in 2011. On a production per common share basis, the increase would be 26%.”

In the Montney Shale Celtic operates in the Resthaven Block, an area near Jaynar, AB, as well as at Kakwa, AB, which is north of Resthaven. To expedite its growing production in the area, Celtic recently completed its main natural gas pipeline system in the southern portion of the Resthaven, which included a river crossing.

In July the company announced that it would construct the Kaybob Plant, a shallow-cut gas plant near its existing compression facility at an estimated cost of C$40 million. The plant is expected to have capacity to process about 150 MMcf/d of raw gas. Celtic’s output from the Duvernay, Montney and Cretaceous formations at Kaybob now are being processed at the third-party operated KA Gas Plant; those streams are to be diverted to the Kaybob Plant in 2Q2013, Celtic said.

Celtic in July also signed a 10-year agreement with Aux Sable Canada LP for NGL processing from the Duvernay and Montney areas. The gas is to be processed at Aux Sable’s NGL near Chicago. The gas would be transported on the Alliance Pipeline beginning in 2Q2013 when the Kaybob Plant is slated to be completed.

Celtic’s net present value of 3P reserves at the end of 2011, discounted at 10% before tax, was C$1,377.2 million, which was up 48% year/year. The reserve life index for 3P reserves was 13 years, versus 10.5 years at the end of 2010. The 3P reserves were 76% weighted to gas and 24% to oil on a volume basis, and on a revenue basis were 44% oil and 56% gas.

Celtic increased its combined natural gas and oil reserves in 2011 from 2010 by 106% to 138.968 million boe, with gas reserves up 109% to 636,992 MMcf, and oil reserves 95% higher at 32.8 million bbl. The company accomplished the gains even with lower finding, development and acquisition (FD&A) costs for proved reserves, which were down 25% year/year, and FD&A for 3P costs down 28%.

Close to 60 Celtic employees are to be given the opportunity to transition to ExxonMobil once the transaction is completed. .

Under the agreement Celtic shareholders would receive C$24.50/share and one-half share of a newly established company, which would hold assets not included in the agreement. The offer represents a 35% premium to Celtic’s closing price on Tuesday of C$18.12/share. The assets in the new company are to include acreage in the Inga, BC, area, as well as oil and gas properties in Grande Cache and Karr, AB.

The agreement still requires approval by Celtic shareholders and regulators. The transaction includes a C$90 million breakup fee that is payable under certain circumstances by Celtic.

Imperial isn’t a party to the Canadian transaction, but it “may elect to participate at a later date through its existing agreement with ExxonMobil Canada that provides for up to equal participation in new Canadian upstream opportunities. Imperial Oil Ltd. has advised that it is currently evaluating this opportunity.”