Canadian Natural strikes $12.7B deal
Widely praised deal continues trend of consolidation, divestiture in industry
CA LG A RY Canadian Natural Resources Ltd. is doubling down in the oilsands in a massive $12.7 billion deal to buy assets from Royal Dutch Shell Plc and Marathon Oil Corp. as they move away from the ultra-heavy oil play.
The deal will push Calgary-based CNRL’s production past one million barrels of oil equivalent per day by the middle of this year and, analysts say, cost the company far less money per barrel than it would have taken to develop a mine. It’s also a continuation of a trend within the oilsands sector — consolidation by Canadian producers, as evidenced by Suncor Energy Inc.’s recent deals and now CNRL; and divestiture by international players like Murphy Oil Corp., Statoil S.A. and now Marathon and Shell.
Funded by a combination of cash, shares and debt, CNRL is buying a 70 per cent stake in an oilsands mining project north of Fort McMurray and an oilsands upgrader from Shell and Marathon, as well as Shell’s thermal heavy oil and oilsands projects and leases in northern Alberta for $12.74 billion.
CNRL will take ownership of 126,000-bpd Jackpine Mine, the 154,000-bpd Muskeg River Mine, and rights to the Jackpine Mine Expansion, which has regulatory approvals for 100,000 bpd, apart from a number of oilsands leases and pipelines across the basin. CNRL will also own the Quest Carbon Capture and Storage (CCS) project, capable of sequestering 1.1 million tonnes per annum of carbon emission, and have a 70 per cent stake in the 204,000-boepd Scotford Upgrader. However, the deal excludes any interest in the Shell Scotford Refinery and Shell Chemicals Plant.
CNRL president Steve Laut said the purchase, the largest in his company’s history, will allow it to operate two mines — the Albian project it is buying from Shell plus its Horizon oilsands mine — and boost production from its downstream upgraders. “It cost us less than it cost to build Horizon,” Laut said of the deal.
CNRL’s shares jumped 9.84 per cent on news of the deal on the Toronto Stock Exchange, closing at $43.31.
“It’s always good when you have a motivated seller and Shell is definitely a motivated seller,” Edward Jones analyst Lanny Pendill said.
Shell had previously indicated it would sell US$30 billion in assets following its US$53-billion merger with BG Group Plc.
“I think they did get a good deal,” Pendill said of CNRL, adding that the purchase price is a roughly 40 per cent discount on what it would have cost to build the mining and upgrading assets from scratch.
Analysts widely praised the deal. Morningstar’s Joe Gemino said it was a vey favourable valuation for CNRL and “I don’t think you’ll see a large ding on their balance sheet.”
GMP FirstEnergy analyst Michael Dunn said, “It’s a few billions less than historical costs.”
For context, Dunn said that Marathon bought its stake in the oilsands mining project for $6.6 billion in 2007, and sold that stake today for $2.5 billion.
Marathon president and CEO Lee Tillman called the deal a “portfolio shift” in a release Thursday, when he also announced the company was spending US$1.1 billion to buy assets in Texas.
For its part, Shell is not completely exiting the oilsands. It will own nine per cent of CNRL and a 10 per cent stake in the oilsands mine and upgrader, down from 60 per cent, once the deal closes.
Dunn said there’s a wider trend in the oilsands of “incumbent, dominant Canadian producers” consolidating their holdings in the ultra-heavy oil formation while foreign producers have “flip flopped” on their investments here. “We’ve seen a few of these internationals exiting,” he said.