CANADIAN NATURAL STRIKES IT BIG WITH SHELL’S OILSANDS
Canadian Natural Resources took the market by surprise again Thursday in announcing it will pay US$8.5 billion for Shell Canada’s oilsands assets.
The deal includes a separate transaction where both companies acquire the assets of Marathon Oil Canada Corp., with each paying $1.25 billion in cash.
Some considered the move a signal the oil market has indeed bottomed out since CNRL chairman Murray Edwards is known for making big bets when everyone else is on the sidelines. Others see it as adding to the growing narrative that Canada is becoming a regional energy player.
Shell’s exit from the oilsands follows the recent decision by Norway’s Statoil to sell its Leismer and Corner assets to Athabasca Oil Corp. for $832 million last December.
It’s widely rumoured Total SA wants to sell its interest in Canada’s oilsands. The French company reduced its ownership in the Fort Hills mining project, while Joslyn and Northern Lights are shelved. The Surmont facility — in partnership with ConocoPhillips — is its only oilsands holding in production.
Listening closely to Royal Dutch Shell’s chief executive at IHS CERAWeek in Houston on Thursday, it sounded like Shell is continuing to move in the direction of increasing its natural gas and renewables portfolio. The sale of its oilsands assets fits that strategy.
“We felt the position we had in oilsands mining was not material and we were not advantaged enough to fit it into our longterm portfolio design,” Ben van Beurden told reporters.
Still, one can’t help feel a bit of a slap, even if it is a Canadian company that’s becoming a major North American energy player through this deal.
Shell was very much a part of the Alberta government’s climate leadership discussions and the policy development that produced the provincial carbon tax and 100-megatonne cap on oilsands emissions.
“I would say Canada is well out in front of any jurisdiction they are investing in,” said Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers.
Shell would have sent a strong signal to the rest of the world — including its critics — had the company, after advocating for a price on carbon, continued its oilsands operations, thereby demonstrating carbon pricing and oilsands development can coexist.
You could say Royal Dutch Shell has bought into the narrative van Beurden himself raised Thursday with respect to discussions on the transition to a lower-carbon future, which have gone in a direction where rational debate on the issue is challenging.
“It’s very hard to get the discussion in the right spot, and partly we are to blame for that ourselves because we have allowed the discussion to drift into a weird place. And it’s very difficult now to get it back to a rational place,” van Beurden said during a discussion with CERAWeek chairman Daniel Yergin.
Shell’s substantive exit from the oilsands represents a changing of the guard; the return to a time when capital committed to developing Canada’s resource sector came mostly from Canada and the U.S.
The company’s impact is not about to disappear, however.
Shell’s was the first major mining project to move forward, after Syncrude’s, in the 1990s. It was also the first to use a parafinic froth treatment for bitumen extraction that reduced costs, produced a cleaner product and eliminated the need for a coker. The solvent-based process has gone through a number of iterations since then and formed the basis for Imperial Oil’s process at its Kearl operations.
Canadian Natural will benefit from Shell’s research and development. Moreover, the deal creates another Canadian champion in the energy sector and gives the company much greater scale, something former Exxon Mobil CEO Rex Tillerson said was critical to long-term success in the oilsands.
That a Canadian company is taking a bigger swing in the oilsands clearly pleases federal Natural Resources Minister Jim Carr.
“We are very happy a Canadian company has taken a larger share,” Carr said between meetings here Thursday, which included time with Scott Pruitt, the newly appointed administrator of the U.S. Environmental Protection Agency.
“We understand the transaction had nothing to do with public policy in Canada. It is not related to competitiveness or regulatory issues. For their own business reasons, they made this decision,” Carr said.
And once again, as international oil companies survey their portfolios, capital is flowing to where it can get the best returns. After two difficult years in the global oilpatch, the focus now for many players continues to be on cost reduction and opportunities to generate meaningful cash flow. Shell’s move is the latest example of that.
The divestiture gives Shell greater capital flexibility, which means its stalled LNG Canada liquefied natural gas project off the coast of British Columbia is now likely to be revived.
“LNG Canada is very much under consideration in our portfolio, it fits into the strategy of integrated gas and core portfolio building blocks that we have,” van Beurden told reporters. “We are not at a point where we can sanction the project but that will come, I would imagine, in a few quarters.”
Canadian Natural’s blockbuster deal should demonstrate — as Suncor did last year with its acquisition of Canadian Oil Sands or Imperial Oil’s filing for approval of its $2-billion Aspen project — the company’s long-term commitment to the resource.
And that is in keeping with one of CNRL chairman Edwards’ favourite phrases — that the oilsands is a marathon, not a sprint.