PanCanadian, Gulf launch heavy oil joint venture

PanCanadian Petroleum Ltd. and Gulf Canada Resources Ltd., both of Calgary, are combining heavy oil assets on the Alberta/Saskatchewan border in a new $400 million (Canadian) joint venture.

The companies said combining operations on properties in the Lloydminster region will cut costs and share expertise while creating one of Canada's biggest heavy oil producers. The deal is expected to close in early May.

The deal is also seen as another sign of resurgence in the heavy oil business in Canada as a result of improving oil prices and narrowing differentials with light oil prices.

Alberta Energy Ltd., Calgary, another major heavy oil company, said it may increase its heavy oil activity if oil price gains hold.

AEC Pres. Gwyn Morgan said his company could increase primary heavy oil production at its Suffield and Pelican Lake, Alta., leases if oil prices stay at current levels.

He said AEC has filed regulatory applications for commercial development of its Primrose properties with capacity for production of at least 10,000 b/d of heavy oil, and AEC could hike that to 15,000 b/d.

JV details

PanCanadian will own 52% of the unnamed new JV and Gulf 48%. The operation will have about 100 million bbl in reserves of conventional heavy oil, production of about 34,450 b/d, and more than 1.4 million acres of undeveloped land. PanCanadian set up a separate heavy oil unit, Van Horne Oil & Gas Ltd., in 1998; the JV will be headed by Van Horne Pres. John Zahary.

PanCanadian will contribute heavy oil assets south, east, and northwest of Lloydminster. It will not include properties at Pelican and Christina Lake, Alta., or thermal properties at Senlac, Sask. Gulf will contribute many of the heavy oil assets in the Lloydminster area it acquired in a 1997 takeover of Stampeder Exploration Ltd. Gulf will not include oilsands holdings at Kerrobert, Sask., or Surmont, Alta.

Gulf CEO and Pres. Dick Auchinleck said the partnership is an important step in the evolution of the heavy oil business in Canada. PanCanadian CEO and Pres. David A. Tuer said the JV gives his company a wider portfolio of opportunities for future investment.