Tar Sands Oil Whack-A-Mole: Shell Out (Sort Of), Canadian Natural Resources In
The big multinationals are pulling out of the Canadian tar sands oil market but the fuse on the world’s most notorious “carbon bomb” is still burning. In the latest development, Royal Dutch Shell inked a deal that will bring the company $7.25 billion for its tar sands oil assets — and Canada’s Canadian Natural Resources has jumped right in to pick up the slack.
Buying up more tar sands oil is a risky bet for CNR, but it could pay off if an anticipated global oil price surge materializes within the next few years.
Shell Says Buh-Bye To Tar Sands Oil, Sort Of
Last month Shell dropped a hint that it would curtail new investment in Canadian tar sands oil operations, but that wasn’t the half of it.
Just a few days ago, the company announced that it was taking a giant step back from tar sands oil fields including the Athabasca Oil Sands Project [AOSP], which it has been operating as a joint venture with Chevron and Marathon:
…Shell will sell to a subsidiary of Canadian Natural Resources Limited (“Canadian Natural”) its entire 60 percent interest in AOSP, its 100 percent interest in the Peace River Complex in-situ assets, including Carmon Creek, and a number of undeveloped oil sands leases in Alberta, Canada. The consideration to Shell from Canadian Natural is approximately $8.5 billion (C$11.1 billion), comprised of $5.4 billion in cash plus around 98 million Canadian Natural shares currently valued at $3.1 billion…
Before you break out the bubbly, keep in mind that the asset sale was just one feature in a more complex arrangement that will continue Shell’s interest in ASOP:
Separately and under the second agreement, Shell and Canadian Natural will jointly acquire and own equally Marathon Oil Canada Corporation (“MOCC”), which holds a 20 percent interest in AOSP, from an affiliate of Marathon Oil Corporation for $1.25 billion each, to be settled in cash.
Oh well, baby steps.
Shell Vies With ExxonMobil For “Clean” Energy Title
The tar sands oil deal is part of a $30 billion divestiture that Shell has been undertaking to position itself for the energy market of the future.
However, the nature of that future still relies heavily on fossil fuels.
In 2015 Shell acquired the biggest global energy company that nobody’s ever heard of, BG Group, for a cool $70 billion.
That move made Shell the second-largest oil company in the world next to ExxonMobil.
The deal also provided Shell with natural gas assets and future natural gas opportunities that put it in a better position to compete with ExxonMobil.
ExxonMobil has already put a lot of energy, so to speak, into pitching natural gas as an effective tool for decarbonization.
It looks like Shell is heading in that direction. Like ExxonMobil, Shell pitches natural gas as an “option to reduce emissions from electricity, by replacing coal.” The company also cites liquefied natural gas as a cleaner alternative to diesel for transportation.
The argument for natural gas as a planet-saver is problematic to say the least, but there you have it.
Both Shell and ExxonMobil are also keeping their respective hands in the fossil market by ramping up their petrochemicals operations.
To be clear, Shell is more committed to wind power and other renewables than ExxonMobil. Just don’t expect the company to quit the fossil market any time soon, whether that’s oil or gas.
Whither Canadian Natural Resources?
The new tar sands oil deal brings up the question of why CNR would want to dig itself deeper into the tar sands hole when other companies are getting out.
Apparently, CNR is betting on one last upward swing in the global oil market.
The emerging consensus among industry analysts is that global oil prices are set for another price hike, potentially a significant one, within the next several years. That would put Canada’s tar sands oil in a better position to compete with cheaper sources.
That can’t happen a minute too soon for CNR. Though some analysts have lauded the tar sands deal as an “astute” move, CNR took a hit last month when Moody’s downgraded its rating.
The Canadian credit rating agency DBRS also gave a thumbs down to the deal, and placed the company under review.
On the bright side, the new deal enables CNR to take a seat at the adults’ table. Here’s The Financial Post enthusing over the company’s new high profile status:
Emerging as a bonafide Canadian oil powerhouse, Canadian Natural Resources Ltd’s blockbuster $12.7 billion deal on Wednesday has propelled the company into the exclusive club of listed global companies that pump out more than a million barrels of [oil equivalent] every day.
No word yet on what CNR plans to do if the expected global oil price spike fails to materialize.
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Photo: Alberta tar sands by Dru Oja Jay, Dominion via Howl Art Collective, creative commons license.
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