Royal Dutch Shell sells all but 10% of Canadian oil sands assets

VANCOUVER (miningweekly.com) – Oil and gas major Royal Dutch Shell has agreed to sell 50% of its share in the Athabasca Oil Sands Project (AOSP), in Alberta, to oil sands major Canadian Natural Gas for $7.2-billion.

Shell late on Wednesday said it would remain as operator of AOSP’s Scotford upgrader and Quest carbon capture and storage (CCS) project, but would reduce its share in the AOSP from 60% to 10%.

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.

Under the terms of the agreement, Shell will also sell its 100% interest in the Peace River Complex in-situ assets, including Carmon Creek, and several undeveloped oil sands leases in Alberta.

Canadian Natural will pay about $8.5-billion, comprising $5.4-billion in cash and about 98-million Canadian Natural shares currently valued at $3.1-billion. Canadian Natural is one of Canada’s largest energy companies and a leader in the oil sands, with a market capitalisation of about $35-billion.

Separately, under a second agreement, Shell and Canadian Natural will jointly acquire and own equally Marathon Oil Canada, which holds a 20% interest in AOSP, from an affiliate of Marathon Oil Corporation for $1.25-billion each, to be settled in cash.

On closure of the transactions, Canadian Natural will become the operator of the AOSP upstream mining assets, and Shell will continue as operator of the Scotford upgrader and Quest CCS project, located next to the 100% Shell-affiliate-owned Scotford refinery and chemicals plants. This arrangement is expected to allow Shell to increase value in its Canadian downstream business and leverage proprietary technology. 

The transactions are expected to close mid-2017, subject to customary closing conditions and adjustments and regulatory approvals.

“This announcement is a significant step in re-shaping Shell’s portfolio in line with our long-term strategy. We are strengthening Shell’s world-class investment case by focusing on free cash flow and higher returns on capital, and prioritising businesses where we have global scale and a competitive advantage such as integrated gas and deep water. The proceeds will accelerate free cash flow and reduce gearing and make a meaningful contribution to Shell’s $30-billion divestment programme,” Shell CEO Ben van Beurden stated.

The current estimated production capability, before royalties, for the AOSP acquired properties, is about 196 000 bbl/d, with February output of about 188 000 bbl/d of mine production and upgrader output of about 195 000 boe/d from a 70% working interest in AOSP; and about 13 800 bbl/d of heavy oil from the 100% owned Peace River properties.