Shell to divest nearly all of its Canadian oil sands interests for $7.25 billion

Royal Dutch Shell PLC has agreed to sell all of its in-situ and undeveloped oil sands interests in Canada and reduce its share in the Athabasca Oil Sands Project (AOSP) to 10% from 60% in exchange for $7.25 billion.

Under the first agreement, Shell will sell its entire 60% interest in AOSP, its 100% interest in the Peace River Complex in-situ assets including Carmon Creek, its 100% working interest in the Cliffdale heavy oil field, and several undeveloped oil sands leases in Alberta to a subsidiary of Canadian Natural Resources Ltd. (CNRL) for $8.5 billion.

The purchase price comprises $5.4 billion in cash plus around 98 million CNRL shares currently valued at $3.1 billion.

The current estimated production capability, before royalties, for the AOSP properties to be acquired by CNRL is 196,000 b/d with February production of 188,000 b/d of mine production and upgrader output of 195,000 boe/d from 70% working interest in AOSP; and 13,800 b/d of heavy oil from the Peace River properties. At yearend 2016, reserves associated with the assets were 2 billion bbl.

In the second agreement, Shell and CNRL will jointly acquire and equally own Marathon Oil Canada Corp., which holds 20% interest in AOSP, from an affiliate of Marathon Oil Corp. for $1.25 billion each to be settled in cash.

Marathon Oil also reported a separate agreement to acquire 70,000 net surface acres in the Permian basin from BC Operating Inc. and other entities for $1.1 billion in cash (OGJ Online, Mar. 9, 2017). That deal includes 51,500 acres in the northern Delaware basin of New Mexico, and current production of 5,000 net boe/d.

Once the oil sands deals close, expected in midyear, CNRL will be the operator of the AOSP upstream mining assets, and Shell will continue as operator of the Scotford upgrader and Quest carbon capture and storage (CCS) project, which is next to the 100% Shell affiliate-owned Scotford refinery and chemicals plants.

Shell and CNRL also have agreed that Shell may swap its 50% purchased interest of Marathon Oil Canada for 20% interest in assets of the Scotford upgrader and Quest CCS project. If the swap were to occur, Shell would fully exit AOSP’s mining operations and hold 20% interest in the Scotford upgrader and Quest CCS project.

The deals also include intellectual property agreements valued at up to $285 million and a long-term supply agreement for the Scotford refinery. Shell says the moves will potentially allow for additional cost reductions and continued value chain optimization.

For CNRL, the total purchase price of the deals amounts to $12.74 billion as of the effective date.

Shell’s ongoing transformation

Ben van Beurden, Shell chief executive officer, said “the proceeds will accelerate free cash flow and reduce gearing and make a meaningful contribution to Shell’s $30-billion divestment program” associated with its acquisition of BG Group PLC, which set in motion Shell’s focus on as integrated gas and deep water.

Michael Crothers, Shell Canada president and country chair, said, “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.”

Shell’s remaining presence in Canada includes its large Duvernay and Montney shale acreage positions, its proposed LNG Canada project, as well as its chemicals, refining, and marketing businesses.

CNRL Pres. Steve Laut, meanwhile, said the deals will enable the optimization alongside Shell and Chevron Corp. of the Horizon and Albian mine operations as well as the Scotford refinery and upgrader.

“Over time opportunities will be explored to increase the capacity of the upgrader so that more barrels of bitumen which are produced in Alberta will be upgraded in Alberta,” Laut said. “Canadian Natural also expects to be able to achieve efficiencies in mine operations, having two mining operations in close proximity at Horizon and Albian to deliver a combined, more effective, and efficient operation that each mine cannot achieve on its own.”

Contact Matt Zborowski at [email protected].