Canadian Oil Sands: Foreign Companies Sell, Canadian Companies Buy

Canadian Oil Sands: Foreign Companies Sell, Canadian Companies Buy
Published on: Oct 7, 2024

On Monday, Canadian Natural Resources Ltd. (TSX:CNQ) announced it would acquire Chevron Canada Ltd.’s 20% interest in the Athabasca Oil Sands Project and natural gas assets in Duvernay for $6.5 billion, continuing the recent trend of oil sands acquisitions in Canada.

Following the news, CNRL’s stock price rose by over 4%.

This transaction makes CNRL the largest oil producer in Canada, placing the vast oil sands reserves of Alberta almost entirely under local control. Over the past decade, the company has continually acquired oil sands assets from foreign energy producers. Companies like Devon Energy and Shell have exited this high-cost, high-emission oil sands business, with CNRL taking over their shares and operations.

“These assets further strengthen Canadian Natural’s asset base,” said CNRL President Scott Stauth during a conference call on Monday. CNRL first acquired its stake in the Athabasca Oil Sands Project in 2017, and this deal increases its holding from 70% to 90%. The company’s oil and gas production is expected to grow by about 9%, equivalent to an increase of 122,500 barrels of oil equivalent per day.

In recent years, many global energy companies have gradually exited Canadian oil sands projects, a trend that has garnered significant attention. Several major oil producers, including BP, Chevron, Total, and Norway’s Statoil, have sold their stakes in oil sands projects. Today, these oil sands are primarily controlled by Canadian companies like CNRL, Suncor Energy, and Cenovus Energy.

Phil Skolnick, an analyst at Eight Capital, mentioned that CNRL has long been considered a suitable buyer for Chevron’s oil sands business, so this acquisition was just a matter of time. However, Desjardins analyst Chris MacCulloch pointed out that although CNRL announced a 7% dividend increase on Monday, the financing for the acquisition will raise the company’s debt, and they plan to temporarily slow down capital returns, which might disappoint some investors.

With the global focus on carbon emissions, banks and investors are increasingly favoring investments in low-carbon energy, leading to reduced support for carbon-intensive projects like oil sands. Companies reliant on oil sands production face greater financial and operational pressure. Reports indicate that capital expenditure in the Canadian oil sands sector has significantly declined, reflecting a noticeable slowdown in industry expansion.

Nonetheless, Eric Nuttall, a partner and senior portfolio manager at Ninepoint Partners, stated after Monday’s deal that many oil sands transactions are priced favorably for Canadian buyers, noting that Canada’s moment to shine has arrived. He also predicted foreign investors will return to Canadian oil producers in the future. According to Bloomberg data, Ninepoint holds 3.1 million shares of CNRL.

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