This article was written by Yadullah Hussain and was originally published on July 14, 2021, in the Financial Post.
Canadian oilsands assets with a potential price tag of $13.4 billion may be up for sale as oil majors divest their heavy oil assets in Western Canada, according to a new report.
“Given the pressure to both cut emissions and invest in renewable energy, we expect the super majors to shed mostly upstream oil and gas assets to fund investments into renewables,” Jeffrey Craig, a Veritas Investment Research Corp. analyst, said last week in a report, Climate Policy Creates a Buyers’ Market.
The likely candidates to buy these assets are what Craig calls Canada’s “Final Four” — Canadian Natural Resources Ltd., Suncor Energy Inc., Cenovus Energy Inc. and Imperial Oil Ltd. — given the exodus of major international oil players over the years and the consolidation within the industry. Along with MEG Energy Inc., the group accounts for 90 per cent of Canada’s oilsands production.
“We expect Canada’s oilsands asset to be the first to come to market,” he said. “A poor reputation for oilsands internationally suggests the only logical buyers would be Canada’s Final Four operators.”
The $13.4-billion price tag is a conservative estimate, Craig told the Financial Post. “They may be worth much more than what we put in, but could be sold for much less.”
In 2019, Devon Energy Corp. sold its oil assets to Canadian Natural Resources for $3.8 billion, which some analysts estimated should have sold for $5 billion to $6 billion, but estimates went as high as $9 billion.
Investor heat on oil majors to quickly jettison carbon-intensive assets is driving the sales. For example, Exxon Mobil Corp.’s board was revamped in May with the arrival of an activist hedge fund that wants the company to diversify beyond oil. Meanwhile, Royal Dutch Shell PLC was ordered by a Dutch court to drastically deepen planned greenhouse gas emission cuts.
Around the same time, Chevron Corp. shareholders voted in favour of a proposal to cut emissions generated by the use of the company’s products, a move that underscores the growing investor push to reduce energy companies’ carbon footprints. Shareholders voted 61 per cent in favour of the proposal to cut so-called “Scope 3” emissions.
Given the pressures, analysts expect oil majors to divest assets that are perceived to have high carbon intensity. Average CO2 intensity for oilsands is calculated at a staggering 73 kilograms per barrel of oil equivalent, compared to around 12 kg per boe for U.S. shale assets, according to Rystad Energy, an Oslo-based energy research firm.
Chevron Canada Ltd. and Royal Dutch Shell Ltd. could be eyeing divestment in the Athabasca Oil Sands Project, a venture the two companies own in partnership with Canadian Natural Resources. The Calgary-based operator has a 70-per-cent stake in the 320,000-bpd project, with Chevron owning a 20 per cent stake and Shell holding 10 per cent.
In June, Chevron chief executive Michael Wirth said his company would consider selling its stake in the Athabasca project, noting that it did not consider the project a strategic asset.
“We’re not in the kind of fire-sale mentality,” Wirth said at an energy event in June. “But if we got what we think is fair value for an asset like that, we’ve been willing to transact on things that are of that scale and kind of relative importance in the portfolio.”
Canadian Natural Resources appears to be the most likely candidate to fully consolidate its position in the project, Craig said. In 2017, the company had acquired a 70-per-cent stake in the ASOP project from Shell for $12.74 billion.
Meanwhile, Suncor Energy could be eyeing Shell’s Sarnia, Ont., refinery, according to Veritas.
“Suncor already has a refinery in Sarnia and would benefit from synergies,” Craig said in a note to clients, arguing that the refinery would help process its light oil barrels. Imperial Oil also has a refinery in Sarnia, but the company already refines more light oil than it produces.
Exxon Mobil could also offload its 29-per-cent stake in Kearl Oil Sands Mine, which it owns along with its subsidiary Imperial Oil. The project may appeal to Imperial, since it is looking for growth projects after deferring its $2.6-billion Aspen project, which had a planned production capacity of 150,000 bpd.
Another asset that may be up for grabs is BP PLC’s Sunrise Oil Sands project in Alberta and the 160,000-bpd Toledo Refinery in Ohio — the U.K.-based oil major owned the projects jointly with Husky Energy Inc., which was taken over by Cenovus Energy in an all-stock, $3.8-billion deal last year.
“As the operator of Sunrise, Cenovus is the natural acquirer,” Craig said. “The remaining Toledo refinery ownership would help to integrate Cenovus heavy oil production from differentials fully.”
Cenovus, Imperial and BP declined to comment. Suncor and Canadian Natural did not respond as the Financial Post went to press.
Other candidates could emerge for these assets, notably financial buyers such as pension funds or Brookfield Infrastructure Partners LP, which is currently locked in a takeover battle for Inter Pipeline Corp. with rival Pembina Pipeline Corp.
Oilsands assets owned by international state-owned players may also be on the market soon.
Last week, Reuters reported that Japan’s state-backed oil producer, Japan Petroleum Exploration Co. (Japex), is considering a sale, among other options, of its Hangingstone oilsands project in Canada.
Japex is seeking a buyer for its 75-per-cent stake in Hangingstone, two sources with direct knowledge of the matter previously told Reuters. CNOOC Petroleum North America ULC owns the remaining 25 per cent of the project.