And another one’s gone with ConocoPhillips’ exit
For anyone who came of age in the late 1970s or early ’80s, ConocoPhillips’ announced sale of most of its Canadian assets to Cenovus Energy would bring quick recall of Queen’s charttopping hit from 1980: Another One Bites the Dust.
By selling its half interest in Christina Lake and Foster Creek to Calgary-based Cenovus in a deal valued at $17.7 billion, ConocoPhillips joins Royal Dutch Shell, Marathon Oil and Statoil in choosing to reduce or eliminate their exposure to the Western Canadian Sedimentary Basin and invest elsewhere.
ConocoPhillips will retain an interest in the Surmont play, which it owns with France’s Total S.A., but it’s only a matter of time before Total is added to the list of those leaving the oilsands.
Delegates who heard ConocoPhillips’ CEO Ryan Lance speak at the recent CERAWeek conference in Houston would have heard a somewhat different view of where the oilsands fit into the company’s portfolio. It sure didn’t sound like it was about to be sold off.
“We have a large position in the SAGD and we are seeing the same technology and innovation driving lower costs and creating opportunity,” he said. “The challenge I have put out to our Canadian team is how do you do that (reduce costs and create opportunity) in a two- or threeyear cycle time frame.
“On the Canadian oilsands side, how do you build 20,000 to 50,000 barrel-a-day increments, and do that in a two- to threeyear time frame and under a $50 cost of supply. They are seeing ways to get that done.”
Almost three weeks later, ConocoPhillips is mostly out of the SAGD world — save for Surmont — that Lance was talking about. That said, because it will retain a 20 per cent stake in Cenovus, the company retains some interest in the oilsands, albeit one without any operational risk.
ConocoPhillips’ decision could be seen as yet another example of Alberta falling down the pecking order of desirable regions to invest, primarily because it’s not seen as being as competitive with other opportunities. Capital is continuing to flow out of the province to areas with more attractive returns.
While Albertans have reason to be concerned about the growing list of companies leaving the oilpatch, there is another, more positive, means to view Wednesday’s blockbuster transaction.
Let’s start with the obvious: this is a transformational deal for Cenvous, which will double its production right out of the chute. It takes a page right out of Canadian Natural’s playbook and follows remarks made by former ExxonMobil CEO Rex Tillerson about success in the oilsands being all about scale.
That’s what Canadian Natural’s acquisition of Royal Dutch Shell’s and Marathon’s oilsands assets was about, and the same holds true for Cenovus.
The deal also puts Cenovus back in the hunt as a company with a more balanced portfolio, since it includes ConocoPhillips’ natural gas assets in westCentral Alberta and B.C.’s Deep Basin, and an under-utilized natural gas processing facility.
Moreover, ConocoPhillips’ continued 20 per cent ownership stake effectively equates to an insurance policy in the context of Cenovus remaining a Canadian company, of size, in the oilpatch.
It also stays true to the original intent behind the merger of PanCanadian Energy and Alberta Energy. When those companies merged in 2002 to create Encana, a key reason for that deal was to create a company of size that would be difficult to acquire.
When Encana was split into two companies in 2009 — natural gas weighted Encana and oilsands-levered Cenovus — there were valid concerns one of the two entities could be merged away.
Wednesday’s transaction removed that worry at Cenovus, now the country’s third-largest oilsands producer.
The fact the company is selling its Suffield assets to help pay for the deal shows the sun setting on what was once a very important part of the Alberta Energy Corp. asset base and the Western Canadian Sedimentary Basin.
According to the International Energy Agency, the world is short an estimated $600 billion in terms of new investment in oil and gas production. The agency’s executive director, Fatih Birol, has specifically mentioned Canada’s oilsands as being a key, non-OPEC contributor to the global supply.
That means while tight oil plays such as the Permian are getting all the attention, the oilsands should not be discounted.
Cenovus has not quite come full circle in terms of having the oil and natural gas balance in place prior to the Encana split, but it comes out of this deal with much better balance to its portfolio and scale for its oilsands assets.
Yes, there are valid reasons to be worried about the continuing exit of companies from Alberta’s oilpatch. But as their decisions to sell bring opportunities to companies with deep Alberta roots, there is a positive aspect to these transactions.
The bold move by Cenovus, and Canadian Natural Resources Ltd. earlier in the month, are great examples.