CANADA TIGHTENS HOLD ON OILSANDS
Canadian Natural boosts stake with $12.7B mega-deal
As some international players beat a path away from the oilsands, growing Canadian petroleum producers are taking their place, firmly planting their flag in the world’s third-largest oil reserves.
This made-in-Canada evolution is one conclusion to draw from Canadian Natural Resources’ mammoth $12.7-billion deal Thursday to buy a slate of oilsands assets from super-major Royal Dutch Shell and Houstonbased Marathon Oil.
Already one of the country’s largest producers, Canadian Natural Resources will acquire a 70-per-cent stake in the Athabasca Oil Sands Project, a large mining development in northern Alberta, and in the Scotford upgrader north of Edmonton.
Once the deal is completed, the Calgary-based company will see its production catapulted above one million barrels of oil equivalent per day, showing just how expansive the firm — led by chairman Murray Edwards — has become since it was a fledging junior outfit and penny stock in the 1980s.
Company president Steve Laut doesn’t think growing above the million-barrel-a-day threshold is all that significant, but called the deal — the largest in its history — transformational.
It adds more long-life, low-decline oilsands assets to its existing platform, allowing it to search for more efficiencies and economies of scale.
In a universe of US$50-a-barrel oil, using scale to drive efficiency and lower operating costs is essential, particularly as the oilsands are one of the highercost barrels in the world.
“I don’t think it really matters if you’re the little fish in the big pond — because we were that at one time — or if you’re the big fish in the little pond, which maybe you could say we are now,” Laut said in an interview.
“What really matters is how you swim.”
There’s been plenty of turbulence in the oilsands ocean since the collapse of crude prices in mid-2014, with some players leaving the region, cancelling projects or scaling back ambitions.
Under Thursday’s transaction, Shell Canada will sell all of its Peace River in situ and undeveloped oilsands leases to Canadian Natural Resources. Shell’s stake in the Athabasca Oil Sands Project drops to 10 per cent from 60 per cent.
Separately, Canadian Natural and Shell Canada will acquire Marathon Oil’s 20 per cent stake in the mining project, for US$1.25 billion each in cash.
Once the smoke clears, Canadian Natural Resources will operate the Athabasca mining assets and while it will own 70 per cent of the Scotford upgrader, Shell will continue to operate the facility.
After last year’s big move by Suncor Energy to boost its stake in Syncrude, it’s clear major Canadian-based operators are staking out their territory while others are in retreat.
“We definitely see that the next era in the oilsands will be pushed ahead by Canadian-focused companies,” said Mark Oberstoetter, Wood Mackenzie’s senior manager of Canadian upstream research.
“The internationals are definitely focusing elsewhere right now.”
Global energy companies that flocked to the oilsands last decade to boost their reserves are now more centred on profitability; many are shifting investments to developments with shorter cycle times, such as shale oil and gas.
According to Wood Mackenzie data, Canadian-led companies now control about 52 per cent of total oilsands production.
Once this deal closes, those numbers tilt to 58 per cent, with three Canadian firms — Suncor Energy, Canadian Natural Resources and Cenovus Energy — responsible for more than half of all oilsands production.
“It’s probably that Canadians understand the basin best, they know how they can grind better value and get effectiveness and efficiencies,” Laut said of the Canadian expansion in the region.
“They recognize the opportunities of economies of scale which we have. And we’re probably more committed.”
For Shell Canada, which has operated in the country for 107 years, the move is also significant.
Parent firm Royal Dutch Shell has been looking to sell off US$30 billion in assets since its takeover last year of BG Group. The global producer will focus on businesses where it has scale and advantages, such as deep water, and shale plays in Canada and the U.S.
“Oilsands mining and in-situ are no longer a strategic fit for Shell,” Shell Canada president Michael Crothers said in a conference call.
Canadian Natural will add about 3,100 employees from Shell and Marathon, including 2,760 at the oilsands mines and another 230 based in Calgary. Crothers said he doesn’t expect many layoffs from the sale.
Marathon and Royal Dutch Shell aren’t the only players reducing their presence in the oilsands.
It’s probably that Canadians understand the basin best, they know how they can grind better value …
In December, Norway’s state oil company Statoil S.A. sold its oilsands operations to Calgarybased Athabasca Oil Corp.
Last year, Suncor Energy acquired Canadian Oil Sands and increased its stake in the Syncrude oilsands project to 49 per cent. It later paid $937 million for U.S.-based Murphy Oil Corp.’s interest in the operations, giving it a majority share in Syncrude.
Kevin Birn, director of oilsands for IHS Energy, said it’s clear the future of the oilsands production looks distinctly more Canadian — in terms of the operators — than it did a few years ago.
The impact on the future is less certain.
Canada’s oilsands sector has built-in growth coming for the next couple of years that will see production hit three million barrels per day by 2020. The broader question is how the consolidation trend will affect expansion beyond that horizon.
Fewer players could mean less investment and, ultimately, less growth.
“You’re going to have less ponies in the race, so to speak, to build (projects) so the overall the activity levels will be a little bit more modest,” Birn said.
“It is going to be a more Canadian story.”