F2: 2017 PRODUCTION BY COMPANY
Source: Wood Mackenzie
Incremental production from acquisitions
0 Cenovus CNRL Suncor Imperial &
F1: CANADIAN UPSTREAM DEALS BY YEAR
Source: WoodMackenzie M&A Tool. 2016 Tourmaline/Shell deal categorized to Deep Basin while
2017 Cenovus/ConocoPhillips categorized to oil sands.
Other or mixed
2010 2011 2012 2013 2014 2015 2016 2017YTD
These deals mark a string of high-profile exits from majors
and international producers. ConocoPhillips, Shell, Statoil,
Murphy, and Marathon have divested the majority or, in some
cases, their entire oil sands portfolios during the downturn.
This exodus by internationally focused producers is causing
stakeholders to question what is next for the leaner, meaner
Canadian oil sands sector. Is it an indictment of the sector’s
future? We counter that the amount paid from the domestic
consolidators is a vote of confidence that costs can be kept low
while output increases. But it will mean the reins are firmly in
the hands of Canadian companies. More than 70% of oil sands
production will now be concentrated between four of Canada’s
largest producers: Suncor, CNRL, Imperial Oil, and Cenovus
(see Figure 2).
With such an astounding corporate changeover, it’s worth
examining the individual deals and their differences before
considering what the future holds for Canada’s 170-billion-barrel
REVIEW OF EVENTS
On March 29, 2017, Cenovus announced the purchase of ConocoPhillips’ 50% stake in the Foster Creek Christina Lake partnership and Deep Basin assets for US$13.3 billion. This is the
largest Canadian deal since CNOOC’s 2012 acquisition of Nexen.
The acquisition makes Cenovus the largest thermal oil sands
producer in Canada with full ownership of its operated Foster
Creek and Christina Lake projects. We forecast Cenovus’ bitumen production to reach 356,000 b/d in 2017.
On March 9, 2017, Shell announced the sale of its 60% interest
in the Athabasca Oil Sands Project (AOSP) to CNRL for US$8.5
billion. In a separate, concurrent transaction, Shell and CNRL
jointly acquired an equal share of Marathon Oil’s
20% interest in AOSP for US$1.25 billion each.
AOSP consists of two mining sites with production capacity of 280,000 b/d and the Scotford
Upgrader. CNRL now operates the mining operation with a 70% stake while Shell holds 10%
and Chevron retains 20%. Shell will continue to
operate the Scotford Upgrader and Quest Carbon
Capture & Storage with a 10% interest. Shell has
an option to trade its remaining 10% mining
stake for an additional 10% at the upgrader.
COMMONALITIES BETWEEN DEAL METRICS
AND STRATEGIC RATIONALES
It is important to highlight that these transactions were not “fire sales.” The deals were conducted at arm’s length, with neither party acting
under financial duress. The motivations of the
sellers are largely unified across the deals and
rooted in decarbonization, debt reduction, retrenchment, and capital rationing. Shell, for example, is aggressively reducing the number of geographies and resource themes
in which it operates. The company is rapidly closing in on its
ambitious US$30 billion divestment program, of which its stake
in AOSP was an unfortunate victim.
ConocoPhillips exceeded its divestment target with this deal
and has accelerated its buyback program. In short, the price
downturn created a situation where international firms were
motivated sellers and found receptive buyers in Canada.
All the deals also included some creative deal-making features, such as equity consideration or contingent payments.
Equity components for the three deals total a sizeable C$7.6
billion (US$5.8 billion), showing the willingness of sellers to
Consideration per flowing barrel is a key metric for these