DEALTALK-Canada's oil sands acquisition pool dwindles as global firms flee
Pubdate：2017-04-24 09:46
Source：liyanping
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By Nia Williams and John Tilak
CALGARY, Alberta/TORONTO April 21 (Reuters) - As international energy companies retreat from the Canadian oil sands sector because of depressed oil prices, a fast-shrinking universe of potential buyers may leave some stranded in the high-cost, capital-intensive sector.
Global producers are bailing on their oil sands investments due to higher development costs, limited export pipeline capacity to get crude to market and concerns about high carbon emissions in the sector.
International companies once drawn by the long-life assets that can produce for up to 50 years during the oil sector boom are discovering the economics do not work as well in a low-price environment.
But to get out, they have to overcome a simple equation: there are more sellers than buyers for the oil sands.
The three biggest domestic producers - Suncor Energy (SU.TO) , Canadian Natural Resources Ltd (CNQ.TO) and Cenovus Energy (CVE.TO) - are digesting multi-billion dollar deals, and have little room for more acquisitions, industry participants say. Global companies like ConocoPhillips (COP.N) and Marathon Oil Corp (MRO.N) prefer to pile into cheaper U.S. shale plays such as the Permian basin instead.
"The market is pretty thin for oil sands buyers," said Janan Paskaran, an M&A lawyer at Torys LLP who advises domestic and international energy companies.
"There are three or four buyers out there that have said they are interested in increasing exposure to oil sands, but they've already done their shopping," he added. "I don't see any new entrants."
BP Plc (BP.L) has joined Chevron Corp (CVX.N) in weighing the sale of its oil sands stakes, Reuters has reported. This follows decisions by Royal Dutch Shell (RDSa.L) , ConocoPhillips and Marathon to dump about $22.5 billion worth of largely oil sands assets this year.
BIG LOSSES
Companies that planned further divestitures from oil sands will either have to patiently sit on their assets or, as in the case of Statoil ASA (STL.OL) and Marathon, accept a loss on their investments.
"There's not enough financial wherewithal in Canada to snap up all of the foreign investment that might be exiting right now," said Rafi Tahmazian, portfolio manager at Canoe Financial, referring to the domestic Canadian energy industry.
"You end up having to decide as a foreign company, am I willing to get rid of this cheap or do I hang on to it?"
Statoil booked an impairment charge of $500-$550 million, when it sold its oil sands assets to Athabasca Oil Corp (ATH.TO) . Similarly, Marathon sold its stake in the Athasbasca Oil Sands Project for $2.5 billion, having paid $6.2 billion to get into the region in 2007.
While some Canadian companies have stepped forward to take their place, their resources are limited.
Cenovus' share price tumbled after it loaded up on debt to buy ConocoPhillips assets. Suncor and Canadian Natural are in better shape financially but may have limited appetite for further deals after major acquisitions in the last 15 months.
Sources said Husky Energy (HSE.TO) , BP's joint venture partner in the Sunrise project, is not keen to increase its exposure to the oil sands but may consider buying BP's stake if the price is attractive.
"The prices will adjust to the supply of buyers and likely move downward," said John Stephenson, president of Stephenson & Co Capital Management, which owns shares in Cenovus and Canadian Natural.
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