Canadian oil sands are stealing the M&A show in 2017. A total of US$24 billion worth of deals have been announced in the Canadian oil sands sector since December 2016. Statoil and Marathon have exited, Shell has all but exited and now ConocoPhillips has sold its most valuable assets (it will retain its 50% operated stake in Surmont).
These deals have allowed oil sands specialists to consolidate portfolios, with the aim of improving operational and capital efficiency around advantaged assets. The oil sands corporate landscape is becoming increasingly concentrated as a result; and existing players are scaling up dramatically (CNRL alone will be producing more than 1 million boe/d).
What is next for the new, more Canadian oil sands sector? We calculate that over 70% of oil sands production is concentrated between four Canadian producers: Suncor, CNRL, Imperial Oil, and Cenovus. We expect a continued focus on cost control as a small set of project expansions begin to re-start. Cenovus will now have leveraged upside to the June scheduled decision to proceed with Foster Creek Phase H and/or Narrows Lake Phase A but also now has a deeper portfolio of non-oil sands opportunities to consider.
On the deal front, we do not foresee any additional >US$5 billion moves, but there are a handful of potential sell downs or exits that could move ahead from the pool of non-operating interest holders. We continue to believe the oil sands portfolio re-shuffling of 2015-2017 is driven by global sellers re-orienting towards lower cost sources of production and finding receptive consolidators in Canadian-domiciled firms.
It is important to note that we do not see these as basement prices, often with premiums being paid above our base case valuations. We stress that these long-life assets feature extreme valuation sensitivity to discount rates and long term oil prices.
Contributed by Mark Oberstoetter Research Director, Upstream Canada for Wood Mackenzie