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(Reuters) - Canadian Natural Resources Ltd has quietly bought up about 12,000 natural gas wells across Alberta over the last two years, a Reuters analysis of regulatory data shows, becoming the country's largest natural gas producer as rivals sold assets or held steady in a tough market.
The counter-cyclical shopping spree helped CNRL push its Alberta well count up 60 percent between the end of 2013 and the end of 2015, building a dominant position in the province and overtaking Encana Corp to become Canada's top producer.
The purchases - some for less than C$1.00 ($0.77) per well - came as the company grappled with the biggest oil price slump in a generation, selling land to pay down debt. While CNRL has bought assets during previous downturns, it has never before acquired so many wells, so quickly. The expanded footprint not only increases production, but also gives the company a strategic advantage that will pay off for years to come if the natural gas market improves.
With an extensive network of wells and the gathering pipelines that connect them, it can turn a profit from wells that might lose money in the hands of a smaller producer.
"All these new wells have low production, but they were bought for pennies for the dollar," said Ramond James analyst Chris Cox, noting the wells are in adjacent properties which offers cost synergies, and "if you are expecting pricing to improve then you get an additional uplift."
The company's North American natural gas production rose 9 percent in 2015, and 35 percent the year before that. While CNRL bought wells, most rivals sold assets or maintained a steady well count. Cenovus Energy Inc's well count dropped 2 percent in Alberta between the end of 2013 and the end of 2015, and Penn West Petroleum Ltd shed nearly 30 percent of its wells.
"In the last 18 or so months, we have had very, very willing sellers," said FirstEnergy Capital analyst Mike Dunn, noting CNRL's dominant infrastructure makes it a low cost operator, and a natural buyer when assets go up for sale.
CNRL President Steve Laut said the company - the biggest private landowner in western Canada and second only to the government - had opportunistically bought wells across Alberta and British Columbia as they came up for sale in areas where it already operates.
"Western Canada over time has become a very high cost basin and so it's difficult to compete especially when commodity prices go down," Laut told Reuters. "All industry ... have to find ways to become more effective and more efficient."
Natural gas prices have languished in recent years, since fracking boosted gas production in North America, but analysts expect prices to rise starting next year, helped by rising industrial demand and export terminal start ups.
At the end of 2015, CNRL had an ownership stake in 27,968 producing natural gas wells in Alberta, up 27 percent from a year earlier. The year before, its well count jumped 69 percent, according to regulatory filings.
The gains were driven by acquisitions, not exploration, a Reuters analysis of Alberta Energy Regulatory data shows.
Between June 2015 and May 2016, CNRL became the license holder for about 3,960 producing natural gas wells. The year before that, it took over some 8,290 wells, a sharp increase from the period between June 2013 and May 2014, when it took control of only about 620 wells.
Typically, a well's license changes hands when it is bought. Over the same two year period, CNRL transferred fewer than 600 of its wells to other licensees.
The acquisitions boosted the company's overall well count. By the end of 2015 it had a stake in 53,868 oil or gas wells in Alberta, up 60 percent from two years earlier.
Some deals were large: CNRL bought more than 2,000 wells from ConocoPhillips as the U.S. company scaled back its Canadian operations. Others were for fewer than 100 wells.
Well sales may be slightly higher or lower due to location adjustments or well name changes. The regulator discourages changing names.
Ron Lowry, chief executive of closely-held R. B. Lowry Resources, sold four natural gas wells to CNRL last year for C$1. Lowry was keen to sell as he was retiring and wanted to ensure he had no environmental liabilities, and CNRL had been operating the wells for more than 30 years, making it an obvious buyer.
"It's pretty hard for anyone else to be realistically competitive," Lowry said of CNRL. "There's not much of a market out there."
Editing by Marguerita Choy