There’s a reason why Canada is planted in the name of the country’s largest petroleum producer.Canadian Natural Resources continues to snap up oilsands assets, expanding on its home turf as international players exit the playing field.The company announced Wednesday it will spend $3.8 billion to acquire Devon Energy’s oilsands and heavy oil assets in Alberta, as the Oklahoma-based firm completes what it calls “a clean and timely exit” from this country.For Canadian Natural, chaired by oilpatch magnate Murray Edwards, it’s another timely acquisition that solidifies its position as a consolidator and dominant oilsands developer.For the country’s energy sector, it represents another foreign departure, but also the continued Canadianization of the oilsands.“The acquired assets are in Canadian Natural’s backyard,” Steve Laut, the company’s executive vice-chairman, said on a conference call.“It is the textbook definition of excellent fit.”The price to buy 128,000 barrels of oil per day of production surprised many observers, who had been expecting a higher valuation for such top-tier assets, which include Devon’s Jackfish thermal oilsands project in northern Alberta.
Devon Energy Corp’s Jackfish Steam Generators.
Canada’s Oil Sands Innovation Alliance
But the number of potential buyers looking to expand in the oilsands can likely be counted on one hand. International producers continue to pass over the country in favour of other opportunities.“The purchase price is definitely lower than I thought … it was at least 25 per cent lower,” said analyst Jennifer Rowland of Edwards Jones.The price was right for Canadian Natural, which has made seven major acquisitions in the past five years.Compared with the company’s blockbuster $8.5-billion purchase of oilsands assets from Royal Dutch Shell in 2017, the price tag was roughly half of that deal’s value on a per-flowing barrel basis, Rowland noted.Investors welcomed the latest deal, as Canadian Natural’s shares gained $1.36 in Toronto to close at $36.81.“It seemed so glaring obviously that this was going to happen. Another American company selling out at bargain-basement prices on an asset that, I think in the long term, will be coveted again,” said Rafi Tahmazian, a senior portfolio manager at Canoe Financial, an investor in Canadian Natural.With the acquisition, the company will increase its leverage and exposure to heavy oil prices, a report by Raymond James noted.For the sector and Canadian governments, it’s more evidence the era of international oilsands expansion is over, at least for the time being.Companies such as Royal Dutch Shell, ConocoPhillips, Marathon Oil, Murphy Oil and Norway’s Statoil have all departed or sold off significant oilsands stakes.Devon, which acquired Anderson Exploration in 1999 for $7.1 billion, is now set to leave Canada, a move it initially signalled in February.Its 735 employees will join Canadian Natural; Devon will use the funds to pay down debt as it focuses on core oil plays in the United States.Amid this foreign sell-off, domestic ownership of the oilsands continues to climb.According to energy consultancy Wood Mackenzie, the percentage of oilsands production owned by Canadian-domiciled firms has shot up from 68 per cent three years ago to an expected 85 per cent by next year if the deal closes.
The Suncor oil sands facility seen from a helicopter near Fort McMurray.
Jeff McIntosh /
THE CANADIAN PRESS
The lure of shale oil plays, the ongoing anti-oilsands sentiment and problems in Canada building pipelines have led international producers to cash in and go elsewhere.“Certainty there is a country risk associated with Canada now, which I never thought I would see in my career,” Chris Seasons, a former president of Devon Canada, said in an interview.“It’s not that the rocks aren’t good … it’s the other factors that are starting to come into play more and more so — regulatory certainty, can you really get anything built in this country?”There is a glass half-full, half-empty aspect to this flight of foreign energy producers.It is never constructive to see a steady stream of companies or investors leave the country, and governments should be paying close attention.“I’d rather have more competition than less, and having more capital available just makes for a healthier business,” added Season, who retired from Devon five years ago.“The positive is these (buyers) are the players who understand these assets the best and know how to garner the best value out of them.”As well, the departure of so many international producers has given Canadian companies — including Suncor Energy, Cenovus Energy and Canadian Natural Resources — the opportunity to expand and find economies of scale on their home turf.The exit of foreign players has also created a new tier of large Canadian operators with scale, expertise and the ability to compete on a global basis.Canadian Natural’s combined production is expected to top 1.1 million barrels of oil equivalent (boe) per day once the deal closes, and the company will produce more than the entire country of Colombia, noted Mark Oberstoetter of Wood Mackenzie.It is now the eighth-biggest producer in the world, if you exclude national oil companies such as Saudi Aramco.By next year, four producers — Suncor, Cenovus, Imperial Oil and Canadian Natural — will account for three-quarters of all oilsands production.“They have become an interesting class of companies on their own, these Canadian large caps,” said Oberstoetter.“They are pretty unique, in that they don’t have declining assets, they are pretty big from a production standpoint, they have a lot of cash.”Whatever the reasons, a fire sale in the oilsands during the past four years has created an opening for Canadian companies to purchase properties in their own backyard, giving them an array of expansion opportunities to consider.And Calgary-based producers like Canadian Natural are increasingly in control of the future of the oilsands.Chris Varcoe is a Calgary Herald firstname.lastname@example.org