Varcoe: Two decades, 23 deals and $33B in M&A — Canadian Natural Resources keeps on growing, as Chevron exits Alberta

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Whenever international oil and gas companies are heading for the exits or selling major properties in Canada, one company always seems to be at the doorstep, ready to move.

On Monday, Canadian Natural Resources Ltd. continued its decades-long track record of buying oilsands and gas properties from foreign players, announcing a major $8.85-billion (US$6.5 billion) deal with Chevron Corp.

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The Calgary-based company agreed to an all-cash transaction to acquire Chevron’s 20 per cent stake in the Athabasca Oil Sands Project (AOSP), a development already operated and majority owned by Canadian Natural Resources.

It also picks up Chevron’s properties in the Duvernay formation in Alberta, with plans to quickly boost production.

“Both these assets provide significant free cash flow for decades,” company president Scott Stauth told analysts on Monday.

“We are going to continue to do what we do — and that’s focus on driving value through continuous improvement, look at ways to reducing costs, look at ways to optimize production.”

The acquisition is expected to add about 122,500 barrels of oil equivalent (boe) per day to the company’s output next year.

Canadian Natural is already the country’s largest petroleum producer, pumping out 1.29 million boe per day during the second quarter, and it continues to grow.

The deal will secure the company’s spot in the list of top 12 largest petroleum producers in the world next year, excluding national oil companies, according to data by consultancy Wood Mackenzie.

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It’s slightly ahead of Occidental Petroleum for 10th spot this year — the list is led by supermajors ExxonMobil and Chevron — and Canadian Natural is currently projected to dip slightly behind the Houston-based producer next year.

“It is growing significantly with this acquisition,” said Jonah Resnick, senior research analyst with Wood Mackenzie.

“CNRL is essentially neck-and-neck with Oxy. They’re in the top three by independent operators in North America and the world, for that matter, because the rest of those companies are all majors, integrated majors.”

The deal adds about 63,000 barrels per day of synthetic crude oil output to CNRL, along with various interests in non-producing oilsands properties. The Duvernay properties in Alberta are targeted to produce about 60,000 boe per day next year.

The Canadian company has a long history of buying assets from international players, such as a $1-billion transaction to buy oil properties from BP Amoco in 1999, including some oilsands leases that became its Horizon Oil Sands development.

In 2017, it secured a $12.7-billion agreement to buy oilsands assets from Royal Dutch Shell and Houston-based Marathon Oil, giving it a 70 per cent interest in AOSP and the Scotford upgrader.

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That transaction, along with Cenovus Energy spending $17.7 billion to buy oilsands properties and gas assets from ConocoPhillips in 2017, led to the significant increased “Canadianization” of the oilsands as international producers left the country.

Two years later, Canadian Natural bought Oklahoma-based Devon Energy’s oilsands and heavy oil properties in Alberta for $3.8 billion.

Canadian Natural Resources, led by chair Murray Edwards, has evolved from a small junior producer in the 1980s to one of the world’s largest independent oil companies through both organic growth and significant mergers and acquisitions.

Wood Mackenzie says the company will have spent an eye-popping US$33 billion in 23 deals over the past two decades.

Its market capitalization exceeds $105 billion on the Toronto Stock Exchange, as its shares closed up 3.3 per cent Monday to $49.81.

“It’s another solid deal by a team who’ve been anointed and given a pass to make such creative deals that don’t impact return of capital,” said Eric Nuttal, a senior portfolio manager with Ninepoint Partners, which is a Canadian Natural shareholder.

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“Given Murray’s track record, if Murray’s buying, I certainly don’t want to be selling.”

With the deal, CNRL will now own 90 per cent of the Athabasca Oil Sands Project.

The all-cash deal is expected to close in the fourth quarter of this year.

For Chevron, which has operated in Canada since 1938, this marks a major disposition as it sells assets following last October’s mammoth deal to acquire Hess Corp. for US$53 billion.

In January, Chevron announced its intention to look for potential buyers for its 70 per cent working interest in the Duvernay.

Chevron Canada, which has about 275 employees in the country, will still own non-operated interests off the East Coast, and retain interests in some British Columbia and northern Canada — but no remaining interests in Alberta, officials said.

Perhaps one of the biggest take-aways is Canada’s largest oil producer is making yet another long-term bet on the oilsands.

Amid questions about the speed of the energy transition, the push to decarbonize and develop a carbon capture network in the oilsands, and ongoing uncertain oil and gas policies, Canadian operators such as CNRL, Cenovus and Suncor Energy continue to expand.

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In early 2017, Canadian-led petroleum companies controlled about 52 per cent of total oilsands production.

Today, Canadian-owned companies own about 82 per cent of oilsands output, said Wood Mackenzie.

“We’re in a world where we’ve got two competing narratives. One is that oil and natural gas have a limited remaining duration, and one where the transition is going to take much longer and we’re going to have considerably longer paths for oil and gas,” said Michael Tims, vice-chair of Matco Investments Ltd., which owns some stock in CNRL.

“It looks to me like a very astute move on Canadian Natural’s part. And everybody knew Chevron was a willing seller in Canada.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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