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Canadian players take over home turf

You could be forgiven for thinking someone has decided to try to “make Canada great again” by encouraging a bout of resource nationalism.

Billions of dollars worth of Canadian oil assets have changed hands over recent weeks, with foreign companies moving out and locals moving in.

The difference between this and past examples of such manoeuvres is that the government has played no role.

And the decisions to sell up have been taken by large oil players such as Shell and most recently ConocoPhillips, completely of their own accord.

So “no”, Canadian Prime Minister Justin Trudeau is not encouraging this initiative or trying to compete with any “America first” line, like US President Donald Trump.

The moves in Alberta are largely forged out of individual companies looking to reduce debt levels, plus a realisation that the value of oil sands reserves has to be marked down — if not sold off — in a period of prolonged low crude prices.

And there is decent money to be made still for sell-offs, as ConocoPhillips obtained $13.3 billion for its assets bought by Calgary-based Cenovus Energy.

ConocoPhillips is selling its 50% holding in the Foster Creek Christina Lake oil sands plus the bulk of its western Canada Deep Basin gas assets.

Around $7 billion of the proceeds will be used to reduce ConocoPhillips’ debt from $27 billion to $20 billion, with a further $3 billion being used to buy back shares.

The move will make it “a much stronger company” according to chief executive Ryan Lance. It should also appease shareholders unhappy to see reduced dividend payments last year.

Wall Street liked the move and marked up shares in ConocoPhillips by 6% in early trading, while Cenovus saw its stock value fall.

The deal follows a similar decision by Shell to dispose of most of its oil sands stakes to Canadian Natural Resources for $7.25 billion.

France's Total and Norway's Statoil have also recently sold down their interests, while ExxonMobil had to take 3.3 billion of Canadian barrels out of the proven category under Securities & Exchange Commssion guidelines earlier in the year.

When West Texas Intermediate (WTI) blend was worth more than $100 per barrel, everyone wanted to take a slice of the Alberta action.

But now, with WTI prices bumping along at $50 and a world of oversupply, the future looks bleaker. Some of these oil sands projects need prices of around $50 to $60 per barrel just to break even.

These often huge, costly and time consuming Alberta production projects also look less attractive than the quicker and easier shale schemes of Texas and the Appalachians. Oil sands schemes also raise environmental questions, as they have a heavier carbon footprint compared to conventional reserves.

However, there is also a growing band of financial analysts and shareholders who worry about “stranded assets” — unusable production  — when the world is moving to cleaner fuels, such as gas.

When such big companies leave town, it suggests the tide is going out for future foreign involvement in oil sands. 

Yet the smaller local players have picked up important assets on their home turf for relatively low prices. It may yet be good for Canada, if unlikely to make it great.

Some of these oil sands projects need prices of around $50 to $60 per barrel just to break even.