The future of the Canadian oil sands is looking a lot more Canadian.
Calgary-based Canadian Natural Resources Ltd. said Thursday it will spend C$12.7 billion ($9.42 billion), its biggest purchase ever, to buy Alberta oil fields and facilities that process the sticky bitumen from oil sands from Royal Dutch Shell Plc and Marathon Oil Corp.
“At the time you see some of the majors pivoting to other assets, you see Canadian companies that are doubling down on the oil sands,” Kevin Birn, a director at IHS Energy in Calgary, said by phone Thursday.
The deals come as West Texas Intermediate, the U.S. crude benchmark price, falls below $50 a barrel. It’s also less than a month after two major U.S. producers had to remove billions of barrels of Canadian oil from their stated reserves because they had become uneconomical as prices fell. As some producers shift capital away from Northern Alberta toward lower-cost, quicker-return resources such as U.S. shale, Canadian companies without the same global reach are staying put and filling the void.
Canadian Natural, which has boosted its dividend and reported fourth-quarter results last month that were three times higher than analysts’ estimates, has said that the economics of expanding oil production from its Horizon project are “awesome.” Its shares climbed 7 cents to C$39.50 at 9:12 a.m. in Toronto.
“This transaction is significant for Canadian Natural as it increases the reliability of underlying sustainable cash flows associated with oil sands as demonstrated by our Horizon operations,” President Steve Laut said in a statement. The purchases will made using a combination of cash and stock and are expected to close by mid-year.
Meanwhile, Exxon Mobil Corp. slashed its reserves by the most in its modern history on Feb. 22, largely due to having to remove all of the oil associated with the $16 billion Kearl project in Canada. ConocoPhillips said its reserves fell to a 15-year low after removing oil-sands barrels.
Today’s agreement marks Marathon’s exit from Canadian oil sands, which it said had accounted for about a third of its expenses and only 12 percent of production. The company found a quick use for the proceeds from the sale, announcing a related deal to add acreage in the Permian Basin of West Texas.
Shell is getting rid of almost all its production assets in the oil sands, while continuing to hold onto the Scotford upgrader, which converts heavy oil to lighter synthetic crude.
Canadian Natural, Cenovus Energy Inc. and MEG Energy Corp. have announced expansion projects in the past five months that will add a total of 110,000 barrels a day of capacity when completed in 2019. The industry has long been hampered by a lack of adequate transport options to move its crude to market. A series of proposed pipelines — and renewed support in the U.S. for the Keystone XL project — may help to ease a bottleneck that has kept Western Canadian oil prices below global benchmarks.
The economics of oil sands are often “misunderstood,” Randy Ollenberger, an analyst for BMO Capital Markets, wrote in a note to clients last month. While the costs are high to get projects started, once operating the outlay is minimal and the industry remains economically viable with oil at $50 a barrel, he said.