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CNRL catapults from fourth largest player in the sandbox to #1 spot

CNRL catapults from fourth largest player in the sandbox to #1 spot

Canadian Natural Resources (CNRL) and Royal Dutch Shell both sealed the deal this week on CNRL's acquisition of Shell's oil sands assets near Fort McMurray, Edmonton and in the Peace River area.

Shell has sold most of their stake in the Athabasca Oil Sands Project (AOSP), reducing its share from 60% to just 10%. AOSP includes the Muskeg River and Jackpine mining operations, as well as the Scotford Upgrader and Quest Carbon Capture and Storage (CSS) Project. Other divested assets include the Peace River property, the Carmon Creek lease and Cliffdale heavy oil field.

 
ATHABASCA-OILSANDS-PROJECT-AOSP-OWNERSHIP.PNG
  OPERATOR
OLD AOSP
NEW AOSP
  SHELL
60%
10%
  CHEVRON
20%
20%
  MARATHON OIL
20%
0%
  CNRL
0%
70%
 

As part of the deal, CNRL will take over operation of both the Muskeg River and Jackpine mines, as well as the Peace River thermal in-situ facility. Despite having a majority interest in the Scotford upgrader and Quest, Shell will remain the operator of both facilities.

Shell's adjacent Scotford refinery and chemicals complex was not included in the sale and remains 100% owned and operated by Shell's Canadian subsidiary.

CNRL paid US$8.5 billion for the package of properties, including 97.5 million CNRL shares (TSX:CNQ), representing 8.8% of CNRL's total equity. Shell has hired various investments banks to figure out when and how to sell its stake in CNRL but says the sale will be "managed for value realisation over time." Shell also plans to take a US$1.5 billion write-down on the sale.

Marathon Oil also divested their 20% stake in AOSP, split half to Shell and half to CNRL, for US$2.5 billion. Marathon took a US$5 billion impairment charge on the deal during the first quarter of this year. Marathon effectively exits the oil sands and has no other assets in Canada.

CNRL catapults itself from the fourth largest oil sands mine operator to the top spot⁽¹⁾. Once the company's Phase 3 expansion is completed at the Horizon Mine next year, CNRL will have a gross bitumen production capacity of about 555,000 bbl/day from its mining operations alone.

 
 

All of the company's mined bitumen will be upgraded into light sweet synthetic crude (or SCO), which sells at prices close to par with West Texas Intermediate (WTI). Total net SCO production will increase from the current 200,000 bbl/day, to 380,000 bbl/day once Scotford is taken into account. After expansions are completed at the Horizon Upgrader later this year, SCO production will rise to 430,000 bbl/day, making it the second largest SCO producer in the oil sands after Suncor Energy⁽²⁾.

With the integration of Peace River, diluted bitumen volumes from thermal in-situ facilities increase slightly from a current capacity of 160,000 bbl/day to just over 170,000 bbl/day. The company has already expressed interest in growing output from Kirby SAGD facility and might revive Shell's Carmon Creek project, which already has all regulatory approvals in place. CNRL is the largest contributor to the Western Canadian Select (WCS) heavy oil stream, mostly supplied from its Cold Lake operations.

When factoring CNRL's conventional, offshore and natural gas production, total production will be well in excess of 1 million boe/day next year.

The CNRL family grows by 2,800 to about 10,000 employees worldwide.


NOTES:
(1) 2018 PRODUCTION CAPACITIES INCLUDE CNRL'S HORIZON PHASE 3 AND SUNCOR'S FORT HILLS MINE, BOTH EXPECTED TO BE COMPLETED AT THE END OF THIS YEAR.
(2) NET SCO TO SUNCOR APPROXIMATELY 546,000 BBL/DAY, INCLUDING 54% STAKE IN SYNCRUDE

SOURCES:
SHELL • SHELL COMPLETES DIVESTMENT OF OIL SANDS INTERESTS IN CANADA
CNRL • CNRL COMPLETES ACQUISITION OF WORKING INTERESTS IN AOSP & OTHER OIL SANDS ASSETS
CNRL • REVISED CORPORATE GUIDANCE
OIL SANDS MAGAZINE • MAJOR SHAKE-UP AT ALBIAN SANDS AS CNRL TAKES OVER MINE OPERATIONS
Shell shifts focus from the oil sands

Shell shifts focus from the oil sands

AER gives Suncor a second chance

AER gives Suncor a second chance

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