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Athabasca Oil reaches agreement with Fort McKay First Nation

Plus: Canadian Natural Resources spends $3.1 billion on a package of assets from Devon Energy. Did it get what it paid for?

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at

Feb 24, 2014

by Max Fawcett

On Friday, shares in Athasbasca Oil (TSE:ATH) popped more than 10 per cent after news leaked out that it had reached a deal with the Fort McKay First nation. As FirstEnergy noted, “the agreement removes all of the FMFN’s objections to regulatory approval of the Dover project. Next steps along the path to exercising the $1.32 billion put option are receipt of Order In Council from the Alberta government, followed by Alberta Environment approval.” And while traders have sold off the stock a bit this morning, FirstEnergy thinks there might still be some juice left in that particular orange. ”We had previously been of the view that one of either a Duvernay JV or receipt of Dover put proceeds would move the stock to the $9.00-$9.50/share range. While we assume that the remaining hurdles to receiving the put proceeds are relatively low risk, the cash is not yet in the door, so we suspect this is why the stock is not yet above $9.00/share on today’s news.”

Meanwhile, earlier last week Canadian Natural Resources (TSE:CNQ) announced it was dropping some $3.1 billion on Devon Energy’s doorstep in exchange for a package of assets in Western Canada that includes 383 million cubic feet per day of natural gas, 10,800 barrels per day of light crude oil and 12,000 barrels per day of natural-gas liquids, six gas plants, four oil batteries, 2.2 million net acres of undeveloped land and 2.7 million net acres of royalty and fee simple lands. FirstEnergy’s Michael Dunn liked the deal noting that “the acquisition makes CNRL even stronger and bigger in many of its core conventional areas, and represents further validation of the success of its strategy to dominate areas and infrastructure to become the logical aggregator. Financially, we think there is close to $2/share in value that can be unlocked via cost synergies and valuation uplift from spinning out or selling the royalty fee land assets, while the metrics before adjustments look quite reasonable at approximately $36,000 per boe/d and five-times 2014e EBITDA.”

For investors, though, the gains might be a bit less robust. “Given the massive outperformance of the Company’s shares relative to its Canadian peers over the past year or so, and the relatively modest upside to our 12-month target price, we are downgrading CNQ to Market Perform, as we suspect the stock’s outperformance versus its peers is due for a pause here.” But despite the downgrade, Dunn said he still considers the company the best long-term investment in the Canadian integrated/large cap space, and he bumped its price target up 10 per cent to $44 per share.

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