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Canadian Natural bulks up oil sands assets with Shell, Marathon deals

A portion of the Shell oil sands mine is seen from an overlook near Fort McMurray, Alta., in this file photo.

Jeff McIntosh/The Canadian Press

Royal Dutch Shell PLC is selling its major oil-sands holdings in Alberta to Canadian Natural Resources Ltd. in pair of agreements that will see it net $7.25-billion (U.S.) and take a nearly 9-per-cent stake in the company, one of Canada's largest energy firms.

In turn, the companies hope to see Canadian Natural run the Athabasca Oil Sands Project's upstream operations, a sprawling development that includes the Jackpine and Muskeg River bitumen mines. Shell will remain operator of the Scotford upgrader near Edmonton and the Quest Carbon Capture project.

Shell is paring its exposure to high-cost bitumen as producers grapple with crude prices that have been cut in half from mid-2014, when oil fetched more than $100 a barrel and the industry was in growth mode.

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The Anglo-Dutch giant had already suspended development of its steam-driven Carmon Creek development in northwestern Alberta as it sought to pare debt levels following its blockbuster purchase of BG Group PLC. Its divestment follows Statoil ASA's exit from the Northern Alberta resource late last year.

The latest agreements are expected to close mid-2017, subject to conditions and approvals.

Opinion: Environmentalists should end the charade over the oil sands

Under the deal, Shell will hand over its Carmon Creek and assets near Peace River, Alta., plus several undeveloped oil sands leases, to Canadian Natural, as it reduces its stake in the Athabasca Oil Sands Project. This $8.5-billion deal will see Shell get $5.4-billion in cash and nearly 98 million Canadian Natural shares, valued at $3.1-billion.

In the second agreement, Shell and Canadian Natural intend to jointly buy Marathon Oil Canada Corp. from an affiliate of Marathon Oil Corp. for $1.25-billion each in cash. Marathon Oil Canada owns a 20-per-cent interest in the Athabasca Oil Sands Project.

Shell CEO Ben Van Beurden said the sale of the oil sands assets is part of the company's long-term strategy to reduce its exposure to high-carbon assets.

It reflects "how we continue to drive to be a world class investment," he said at IHS Markit's CERAWeek conference in Houston.

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He said Shell will focus on natural gas, offshore oil and downstream operations.

"We are right in the middle of transforming our company into the company of the future," he said.

Mr. Van Beurden said earlier in a statement that he believes demand for crude will peak as early as 2030, though noted the timing will depend on a number of factors.

The company said the sale includes $285-million worth of intellectual property agreements and a long-term supply agreement for the Scotford refinery.

"Shell has been in Canada for more than 100 years and we plan to continue our presence as one of the country's largest integrated energy companies," said Michael Crothers, Shell Canada's president.

After the speech, Mr. Van Beurden said the carbon Issue was not the main driver for the deal.

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"We felt the position we had in oil sands mining was not material and we were not advantaged enough for it to really fit in our long-term portfolio design," he told reporters.

The company, while maintaining natural gas holdings in British Columbia, did not say whether job cuts were tied to the sale. However, it said it could ultimately swap the 50-per-cent stake in Marathon for a 20-per-cent stake in the Scotford upgrader and a carbon capture project. That would mean the company would fully exit mining operations.

For now, the deals will leave Canadian Natural with a 70-per-cent stake in the Athabasca Oil Sands project, including 70 per cent of the Scotford upgrader, though Shell will remain its operator.

Steve Laut, president of Canadian Natural, said the transaction will increase the reliability of underlying cash flow from the oil sands. Canadian Natural will bring in 3,100 employees from Shell as part of the transaction.

The company currently operates the expanding Horizon oil sands mine and recently restarted work at its steam-driven Kirby North development.

Shell is the latest among the European multinationals to pull out of the oil sands, including France's Total SA and Norway's Statoil.

Mr. Van Beurden "seemed to imply in his speech that there was a carbon element but there was also a cost element," Greg Stringham, former vice-president at the Canadian Association of Petroleum Producers and now an independent consultant.

"So there are those two pressure elements that made it an option to sell it off."

Mr. Stringham noted there is an irony that those European companies are the biggest proponents in the industry of carbon pricing, and yet are shifting their investments from one of the few oil and gas jurisdictions in the world that has a carbon price.

Meanwhile Canadian companies are expanding their footprint, as is ExxonMobil Corp. Mr. Stringham noted the International Energy Agency this week indicated the oil sands will be an important source of crude in the world's effort to meet growing demand and replace declining fields.

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About the Authors

Josh O’Kane is a reporter with The Globe and Mail's Report on Business. Since joining the paper in 2011, he has told stories from New Brunswick to Nairobi. In his spare time, he writes about music and the industry around it. More

Jeff Lewis is a reporter specializing in energy coverage for The Globe and Mail’s Report on Business, based in Calgary. Previously, he was a reporter with the Financial Post, writing news and features about Canada’s oil industry. His work has taken him to Norway and the Canadian Arctic. More

Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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