The situation in the Canadian oil sands has been a complicated one. Since it’s more expensive to bring out oil from this area than other crude producing regions, Canadian oil companies have traditionally needed higher oil prices in order to survive.
For the past while before Q1 2019 when oil began to rise again, these companies have struggled, with many choosing to shed much of their assets. However, one oil giant is doubling down on the oil sands, investing $2.8 billion to acquire one of the country’s biggest energy companies.
Oil and gas producer Canadian Natural Resources (TSE: CNQ) announced on Wednesday that it would buy all the Canadian-based assets of Devon Energy Group (NYSE: DVN) for around $2.8 billion in cash.
This move comes as a surprise to money, as international energy giants like ConocoPhillips (NYSE: COP) and Royal Dutch Shell (NYSE: RDS.A) have been selling off their Canadian assets for several years. This was mostly due to falling oil prices, making operations in the oil sands unprofitable. At the same time, limited pipeline space in Canada also has been hurting growth prospects.
Other Canadian oil producers such as Suncor Energy (TSE: SU) have also decided not to invest anymore, mainly due to the pipeline issue. However, Canadian Natural has chosen to double down on gobbling up Devon’s assets, claiming that they were too good to pass up and would save around $100 million in costs over the next year through cost efficiencies.
Devon’s Canadian portfolio of assets are focused mainly in the oil sands, with an average production rate of 113,000 barrels in the first quarter. The U.S.-based energy group went on to say that it was selling its assets to focus mainly on U.S. production, with the domestic shale boom in the Permian Basin getting plenty of attention from international energy companies.
Even other Canadian energy companies have been selling off their assets. Husky Energy (TSE: HSE) ended up shedding over 500 retail outlets after 80 years in business, estimated at being worth around C$835 million.
While most Canadian companies are trimming down the fat so to speak and while international companies are turning away from the heavy oil sands business, Canadian Natural is one of the only buyers in the market right now.
Shares of Canadian Natural increased around 4 percent today in response to the news, a significant move for a $44 billion-dollar company. If oil remains at its current levels, Canadian energy companies could stage a comeback, but the growth of America’s own, cheaper energy supply is making that an uncertain possibility.
Devon Energy Group Company Profile
Devon Energy, based in Oklahoma City, is one of the largest independent exploration & production companies in North America. The firm’s asset base in spread throughout onshore North America with franchise development assets in the Stack and Delaware Basin.
Other shale assets include acreage in the Eagle Ford, Powder River Basin, and Barnett. The company also holds oil sands operations in Alberta, Canada. At year-end 2018, Devon’s proven reserves totaled 1,927 million barrels of oil equivalent, or boe, with net production of 535 mboe/d. Oil and natural gas liquids made up 66% of production and 59% of proven reserves. – Warrior Trading News