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Heading for the doors Alberta oil sands exodus clears decks for round of consolidation among survivors Gary Park for Petroleum News
The 109th annual edition of the Calgary Stampede wrapped up in mid-July but the stampeding is far from over in Canada’s oil sands headquarters.
In fact it’s rapidly turning into a year-long event as doors slam for the last time in many of the city’s downtown head offices, driven mostly by a scramble among entities of various sizes to bail out of northern Alberta’s oil sands region.
They are caving in to pressure to reduce or eliminate their carbon emissions and their inability to attract investment capital.
A report by Veritas Investment Research estimates the oil sands assets up for sale carry a potential price tag of C$13.4 billion.
And that list is rumored to be growing as state-backed Japan Canada Oil Sands, JACOS, prepares to seek a buyer for its 75% stake in the Hangingstone oil sands project that averages output of 23,000 barrels per day. The other 25% of the facility is held by Beijing-based CNOOC.
Industry analysts estimate the JACOS share could fetch more than C$200 million, with prospective buyers enticed by extensive oil reserves that would benefit from a fresh capital infusion.
Veritas analyst Jeffrey Craig said his firm expects the super majors to “shed mostly upstream oil and gas assets to fund investments in renewables.”
The ‘final four’ He said the exodus would likely leave the bulk of oil sands assets in the hands of Canada’s “Final Four” - Canadian Natural Resources (CNR), Suncor Energy, Cenovus Energy and Imperial Oil.
Along with MEG Energy (12% owned by CNOOC, down from an original 16.69% in 2005), the quartet accounts for 90% of oil sands production.
“A poor reputation for oil sands internationally suggests the only logical buyers would be Canada’s Final Four,” said Craig.
He told the Financial Post that the actual returns from sales could actually fall well below his own firm’s estimated target of C$13.4 billion, noting that ExxonMobil (which controls 69.6% of Imperial) revamped the value of its holdings in May in response to pressure from an activist hedge fund demanding that the global mega-power diversify beyond oil.
In addition, Royal Dutch Shell was ordered by a Dutch court to drastically deepen its planned carbon emission cuts, while Chevron shareholders voted to cut emissions generated by the company’s products.
Divestiture pressure building Rystad Energy, a Norwegian-based energy research firm, said the pressure is building on all oil sands players to divest assets that are considered to have high carbon intensity.
The firm said the average intensity of carbon dioxide emissions is 73 kilograms per barrels of oil equivalent compared to about 12 kg for U.S. shale assets.
The growing belief among observers is that Chevron and Shell are contemplating unloading their respective 20% and 10% stakes in the Athabasca Oil Sands Project, a venture they own in partnership with CNR, which has a 70% share of the 320,000 bpd operation that it acquired in 2017 for C$12.74 billion from Shell.
Craig suggested the CNR would be the most obvious candidate to fully consolidate its position in Athabasca.
Suncor Energy is viewed as a likely buyers of Shell’s Sarnia oil refinery in Ontario, improving its ability to process light oil production.
Also seen as candidates for the bidding block are ExxonMobil’s 29% holding in Alberta’s Kearl Oil Sands Mine, which it owns in a joint partnership with Imperial.
Imperial could make an offer for outright ownership of Kearl as an alternative to the deferral of its C$2.6 billion Aspen project which had planned output of 150,000 bpd.
The sellers’ list is likely to include BP’s Sunrise oil sands project in Alberta and the 160,000 bpd Toledo refinery in Ohio, which form a team to produce and process oil sands bitumen.
BP had jointly owned both ends of the operation with Husky Energy, which was swallowed by Cenovus Energy for C$3.8 billion in 2020.
Craig said Cenovus would be the “natural acquirer” to integrate its heavy oil production.
Other possible buyers of the assets could include pensions funds or Brookfield Infrastructure Partners, assuming it close the current deal to buy Inter Pipeline.
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