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Which energy company will exit the oil sands next?

A portion of the Shell Albian Sands oilsands mine is seen from an overlook near Fort McMurray, Alta., on July 9, 2008.

Jeff McIntosh/THE CANADIAN PRESS

Energy company executives chase fads the same way large chunks of the population collectively lose their minds and start chasing Pokemon Go characters.

These days, the CEOs of oil and gas companies are all aflutter for what's known in the industry as "short cycle-time" projects, regions where black gold can be extracted relatively quickly and easily. That thinking is behind a rush to get exposure to the Permian basin in Texas and New Mexico.

In contrast, Alberta's oil sands are distinctly out of fashion: Difficult to develop, expensive, controversial and just not cool.

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That shift in sentiment explains the deals transforming Canada's energy sector. After spending billions of dollars in the oil sands over several decades, Royal Dutch Shell PLC and Marathon Oil Corp. headed for the exits on Thursday by selling properties to Canadian Natural Resources Ltd. for $8.5-billion (U.S.). At the same time it was selling Alberta oil sands assets, Marathon announced a $1.1-billion acquisition in the Permian region.

Norway's Statoil ASA cashed out of the oil sands, while Total SA of France retreated from a significant project in 2015. The exodus is expected to continue, with speculation focused on potential asset sales from at least three global energy companies with massive oil sands holdings and priorities that have shifted to other regions.

In no particular order, companies that may quit the oil sands include ConocoPhillips Co., the passive partner in an oil sands project run by Cenovus Energy Inc.; Chevron Corp., which owns the remaining 20 per cent of the Athabasca mine that Canadian Natural is acquiring; and Total, which sold a portion of its oil sands exposure two years ago, but still owns a stake in Suncor Energy Inc.'s $13-billion Joslyn project.

There's a short list of contrarian buyers for these properties, a group of mostly Canadian energy companies that believe the massive reserves lying under the Alberta muskeg will be back in vogue in the not-too-distant future, as a global addiction to fossil fuels proves impossible to kick and oil prices increase. Canadian Natural, Cenovus and Suncor are on that list of oil sands champions, and each has signalled it is open to acquiring additional assets.

There's also at least one major foreign player likely to be a buyer as oil sands properties continue to come up for sale: Exxon Mobil Corp. The world's largest oil company wrote down the size of its proved reserves in February by an eye-popping 19 per cent, including a 3.5-billion-barrel reduction for the Kearl oil sands project, leading to speculation the company had fallen out of love with these assets. But the move was driven by U.S. accounting regulations, rather than a change of sentiment, and sources familiar with Exxon Mobil's plans say the company is likely to increase its Alberta exposure over time.

Sellers are taking serious haircuts on oil sands assets as they head for the doors. Marathon's experience qualifies as embarrassing: The Houston-based company paid $6.6-billion to buy into the oil sands in 2007, it got $2.5-billion for the properties on Thursday, and called this an "attractive value." Shell said Thursday that it expects to take an "impairment" of up to $1.5-billion on its disposition.

Buyers, on the other hand, are snapping up producing oil sands properties at a fraction of the cost of building from scratch, with Canadian Natural getting properties from Shell for approximately 40 per cent less than what it spent developing a mine of similar scale, the Horizon oil sands project.

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It may not be cool, but going against the fad for buying easily developed energy properties and instead snapping up proven oil sands projects for 60 cents on the dollar sounds like a sound strategy for Canada's largest oil and gas companies.

Video: Carbon price not behind Shell’s oil sands sale: McKenna (The Canadian Press)
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About the Author
Business Columnist

Andrew Willis is a business columnist for the Report on Business at The Globe and Mail, based in Toronto.He has been in business communications and journalism for three decades. More

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