Alberta’s Duvernay Shale is the emerging shale play in Canada. It has experienced numerous industry entries since fall 2010, after the completion of the first horizontal well by Celtic Exploration. Besides, ExxonMobil’s announced acquisition, their largest ever in Canada, has been strongly discussed in recent months. Liquid richness and favorable economics (avg. BE price of $65-70/boe and narrowing WTI spread) make Duvernay Shale an attractive play. But not only that ... Canada overall is becoming more attractive for investors. So who comes next?

The first acquisition to be announced in 06/2012 was the bid of Malaysia’s Petronas to acquire Progress Energy Resources for $5.3B, followed by a bid of CNOOC to acquire Nexen for $15.1B announced in 07/2012. Both included vast acreage positions in Montney Shale and Horn River Shale. (Nexen held 300,000 acres in the shale gas area of the northwestern BC in the Liard Basin, Cordova Basin and Horn River Basin. Progress Energy held 139,150 acres in the Montney Shale). The bids were evaluated to determine whether they would be of net benefit to Canada. On Dec 07th, 2012 the final decision was presented by Canadian Prime Minister Stephen Harper, who approved both deals.

The most recently announced acquisition (Oct 17th, 2012) caused quite a lot of discussion. ExxonMobil announced that it would acquire Celtic Exploration for $3.15B. Imperial Oil plans on participating by 50%. In total, ExxonMobil will acquire 104,000 net acres in the Duvernay Shale and 545,000 acres in Montney Shale. ExxonMobil is also looking at potential LNG exports and may attempt to join LNG export projects led by Apache or Royal Dutch Shell.

What was the market response? The share value of smaller Canadian companies active in the Duvernay Shale surged after the acquisition was announced. (By %, the shares have risen by 20% for Long Run Exploration, by 30% for NuVista Energy, by 32% for Yoho Resources or by an astonishing 67% for Terra Energy – compared to the period just prior to when the acquisition was announced to Dec 10th, 2012. Source: Bloomberg.) Upstream media has already reported speculations that smaller companies with assets in Canadian shale plays may become future takeover targets.

PROGRESS ENERGY ... NEXEN ... CELTIC EXPLORATION ...WHO COMES NEXT?

Duvernay Shale: Map to the left depicts the acreage position of largest land-holders; map to the right represents Duvernay acreage valuation with ranking based on the optimal combination of facts: depth, thermal maturity and thickness.

RYSTAD ENERGY INDUSTRY OUTLOOK

• In2012,32%ofallsignedCanadiandealswereshale-related.

• LNG prices in SE Asia have respondedsensitively to the development in Japan(in06/2012Japanreactivatedtwonuclearplants);importanceforpossiblesanctioningofliquefactionplants(Kitimat)inB.C.

• MontneyShale:2of5biggestglobalE&PtransactionsinH1/2012linkedtothisplay-acquisitionofProgressEnergyResourcesby Malaysia’s Petronas for $5.386Bfollowedbytheacquisitionofa40%stakein EnCana’s Cutbank Ridge by JapaneseMitsubishifor$2.898B.

• Alberta Bakken Shale: results of the firstwells exceeded expectations in the areasouthofLethbridge(415-520bbl/dofoil).

• Horn River Shale: industry expecting tosign long-term sales contracts on LNGexports.

RYSTAD ENERGY PRODUCT HIGHLIGHTS

• In 2013, Rystad Energy will continue toincreasetheircommercialproductrangeonNorthAmericanShale.Forthepurposeofthis,RystadEnergywillprovideandpublishits shale data reports independently fromgivenpublishinghouses.Officialinformationwillbeprovidedlaterthismonth.

TotalProductioninDuvernayShale

NetPresentValueofNexen

WellServiceE&PExpenditureinCanada

SHALE ACQUISITIONS IN CANADA: BREAKING RECORDS

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CANADASHALE NEWSLETTER

Vol. 2, No.1 January 2013