Hicks on Biz: CRNL deal with Shell a good thing BY GRAHAM HICKS FIRST POSTED EDMONTON SUN: FRIDAY, MARCH 17, 2017
All eyes are focused on the Alberta 2017/18 provincial budget – the spending side of the equation. But good news is happening in the oil and gas sector – where most of the money comes from.
This is a tad ironic. According to the headlines, the sky is falling on the oilsands.
A few months ago, international energy giants ExxonMobil and ConocoPhillips announced a $4.4-billion write-down in the value of their oilsand reserves (the value of oil still in the ground). The sky is falling!
Earlier this week, oil giant Royal Dutch Shell announced it was leaving the oilsands, selling its Athabasca Oilsands (Albian) mine, the Scotford upgrader and smaller oilsands holdings to Canadian Natural Resources Limited (CNRL) for $12.7 billion.
Locally, Shell will continue to own Redwater’s Scotford refinery alongside the upgrader, and will continue to operate both plants.
The sky is falling! All the world players who piled into the oilsands from 1990 to 2014 are getting out!
Whoa! The write-down of Exxon and ConocoPhillips assets was a book-keeping exercise. American regulators define reserves as “commercially retrievable”. With oil prices hovering at $50 a barrel US, much of what was “commercially retrievable” at $100 a barrel is no longer retrievable … for now.
The sale of Shell’s oilsand holdings to CNRL, all things considered, is a good thing, an excellent thing.
CNRL is as Canadian a company as there is. Started by Calgary entrepreneur Murray Edwards as a small independent oil/gas company, it has grown into one of the top oil producers in the world – and most of its operations are in the oilsands.
With Suncor’s moves last year to become majority owner (53%) of the Syncrude consortium, two reputable Canadian companies – Suncor and CNRL – now dominate oilsand production.
Most of the smaller in-situ oilsand players (MEG, Husky, and Cenovus) are also Canadian owned. You could argue Imperial Oil – owner of the technologically advanced Kearl Lake mine and a long-time Syncrude partner – is also Canadian, but its majority shareholder is the mighty Exxon.
Off the top, Suncor and CNRL are acknowledged world-leaders in oil-sand technologies and operating efficiencies. CNRL has been the risk-taker of the oilsands, the first to give new technologies a chance.
It can’t be over-emphasized how important Canadian ownership is of such important natural resources. Decisions are not being made by a board of directors in Amsterdam, London or Hong Kong – for whom the oilsands represent nothing more than a small bottom-line entry.
Suncor and CNRL’s shareholders are Canadian, most of their board members are Canadian, their management and their workers are Canadian. They live and raise their families in Alberta. Their research and development is carried out at the University of Alberta and other institutions in Edmonton and Alberta. Their profits stay in Canada, distributed to Canadian shareholders. Their corporate taxes, their employees’ income taxes, stay in Canada.
The reason Suncor and CNRL are buyers, not sellers, is because they are the best in the oilsand business, and have made good profits where the big boys haven’t. The multi-nationals are rushing to invest in the faster returns of shale oil. Suncor and CNRL are in the oilsands for the long haul.
Oil analysts have fallen over themselves praising Suncor and CNRL’s performances over the past 18 months – making reasonable profits in this new $40 to $50 a barrel world through new operating efficiencies and using new technologies that are cleaner, greener, safer, faster and cheaper.
Both companies have the full confidence of investors and lenders – CNRL barely raised a sweat, raising $12.7 billion to buy the Shell assets. Analysts say it’s a heckuva deal, that it would cost much more to create such increased oil production from scratch.
Suncor calmly announced it was spending another $2 billion – to $17 billion – on its Fort Hills oilsands project, raising projected production from 180,000 barrels a day to 194,000 a day. Nobody blinked.
The markets believe in Suncor and CNRL. Both share prices have surged in the last few months, from $35 to $40 for Suncor, from $40 to $45 for CNRL. Both are paying a 3% to 4.7% annual dividend to their shareholders — just after the worst two years in the history of Western Canadian oil and gas production!
As corporate revenues grow, so will royalties. It may be decades before the likes of the $9 billion Alberta took in during $100-plus oil, but the $2.8 billion of 2015/16 hopefully represents the bottom of the royalty cycle. The oilsands should grow at a steady, slower pace, in bite-sized pieces. This is a good thing.
Reasonable environmentalists accept that the oilsands is cleaning up its act. Pipeline capacity is being expanded. “Canadianization” is a good thing, for all the reasons above. Other than job losses through automation – a societal-wide challenge – our biggest industry is hopefully on the road to recovery.