A decade after expanding its grain business during a slump
in prices, the Richardson family of Winnipeg, one of the richest in Canada, is
making a similar bet on oil, Bloomberg reports.
With crude futures collapsing to the lowest in five years,
the Richardson’s Tundra Oil and Gas unit last month agreed to buy 550 wells in
Manitoba, part of a US$410 million divestiture of Canadian assets by EOG
Resources Inc. (EOG) Tundra’s biggest purchase ever will boost its output this
year by one-third to 32,000 barrels a day, and Chief Executive Officer Ken
Neufeld says he remains on the lookout for more deals.
“If you’ve got a sustained low oil price for a period of
time, you’re going to have companies out there that are going to run into some
financial difficulty,” Neufeld said in a December 16 telephone interview from
Winnipeg.
“There may be a buying opportunity there.”
As the oil slump forces some energy companies to cut
spending, Tundra said it will expand drilling in a bet that prices will rally.
To zig when others zag isn’t new for privately-held James Richardson and Sons
Ltd, a company founded as a crop merchant more than 157 years ago, before Canada
became a nation. Over the past decade, the family invested in grain facilities
during a drought and expanded in financial services amid the worst economic
crisis since the Great Depression.
Those earlier bets paid off. In November, Canadian Business
magazine ranked the Richardsons as the nation’s eighth-wealthiest family at CAN$5.05
billion (US$4.3 billion), up 14 percent from 2013. The company, one of Canada’s
largest grain handlers, is shared by nine fifth-generation relatives, including
Hartley Richardson, the current president and chief executive officer, and
Carolyn Hursh, its chairwoman.
While the family made its fortune selling grain, the company
expanded into oil exploration in 1980 and became the largest producer in
Manitoba’s slice of the resource-rich Bakken field. The reserves acquired from
Houston-based EOG are located in the Williston Basin, where Tundra has been
drilling for more than three decades.
Oil production in North America has surged, with U.S. output
reaching the highest in more than three decades, as horizontal drilling and
hydraulic fracturing unlocked supplies from shale formations including the
Bakken in North Dakota, which borders southern Manitoba. With slower economic
growth limiting global fuel demand, prices are down 45 percent in the past year
to around US$51 a barrel in New York.
Energy producers like EOG have been forced to reset
priorities to focus on their most profitable assets, creating buying
opportunities for those looking to expand, said Fadel Gheit, a senior oil
analyst at Oppenheimer and Co in New York.
“As we speak, it’s a buyer’s market,” Gheit said.
Tundra plans to spend US$70 million in the next year to
drill on the EOG properties, which includes 12,000 acres of undeveloped land,
in a bid to find more oil. EOG said the net proved reserves it sold in Manitoba
and Alberta, totaled 8.5 million barrels, including natural-gas liquids.
“We continue to believe the business that we’re in is a good
business long-term,” Neufeld said.
“I’m optimistic crude prices are going to come back to
something more normal.”
Oil probably will reach US$80 to US$85 in the next 12
months, he said. Since 2009, prices have averaged almost US$92 a barrel on the New
York Mercantile Exchange.
Read more HERE.
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