China Oil and Gas Buys Baccalieu Energy

China Oil and Gas said it has entered into an arrangement agreement to acquire Baccalieu Energy Inc. in Canada at the consideration of CAD236 million. The Group gets access to the North American oil and gas upstream market, becoming an international energy company with vertically integrated business structure.

Baccalieu Energy is a Canadian oil and gas producer focused on the highly economic Cardium light oil resource play. Baccalieu Energy holds interests in 181 gross sections (c.469 square kilometers) of land (50% undeveloped) including 139 gross sections (c.360 square kilometers) with Cardium rights and with operations in four main areas namely Pembina, Ferrier, Sylvan Lake and Harmattan of west central Alberta, Canada

In addition, Baccalieu Energy owns and operates approximately 200 km of oil and gas gathering systems, including 13 oil batteries with a combined capacity of approximately 1,500 m3 per day and 9 gas compressors with approximately 0.5 million m3 per day of combined capacity. These facilities are connected to 28 third party gas processing plants with a processing capacity of over 85 million m3 per day.

The average daily production of Baccalieu Energy was 4,244 barrels of oil equivalent (67% is light oil and NGLs, 33% is natural gas) and it achieved an average Operating Netback of C$51.5 per barrel of oil equivalent in the first quarter of 2014. According to the reserve report prepared by GLJ Petroleum Consultants and dated as of 31 December 2013, Baccalieu Energy has Proved reserves of approximately 16.2 million barrels of oil equivalent (60% is light oil and NGLs, 40% is natural gas) and Proved plus Probable reserves of approximately 22.0 million barrels of oil equivalent (60% is light oil and NGLs, 40% is natural gas).

As at 11 February 2014, Baccalieu Energy had a total of 195 oil and gas producing wells.

The Group aims to become a competitive international energy company with vertically integrated business structure. It has been seeking suitable business opportunities in the energy sector related to the Group’s principal business operations, and is particularly drawn by Canada’s stable political environment, vast oil and natural gas resources and an established energy sector. Baccalieu Energy possesses quality producing oil and gas assets, a very experienced and proven management team, strong cash flow and profitability with considerable potential for growth. The Directors believe that through the acquisition of Baccalieu Energy, the Group could enter the upstream industry and therefore lift the Company’s image as an international energy company with a diversified geographic and business portfolio, which further helps to reduce concentration risk, improve earnings and enhance shareholder value,” China Oil and Gas said in a statement.

Currently, there is a big gap in the natural gas prices between Canada and China, and therefore, there is significant profit potential to export natural gas from Canada to China in the future. A number of the world’s major energy companies have proposed the construction of multiple LNG export terminals in the western British Columbia, Canada, with a total design capacity of more than 7 billion cubic feet per day, creating great opportunities for the future development of the Canadian upstream energy companies. The Directors are of the view that the present move into the Canadian upstream oil and gas sector allows the Group to be best positioned for the future energy exports from Canada into China, and therefore breakthrough the bottleneck of the existing supply shortage and create significant synergies with the existing natural gas distribution business in China, which is highly beneficial to the Group’s long-term development,” it added.

Press Release, June 24, 2014

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