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Turning to ‘home cooking’ Canadian-based oil sands operators welcome exodus of foreign players to lower costs, stimulate innovation, raise competitiveness Gary Park For Petroleum News
The flight by foreign-based oil companies from the Alberta oil sands will result in control of the resource passing to domestic producers who are confident that the consolidation process will drive down operating costs, stimulate innovation and make the industry more competitive.
Brian Ferguson, chief executive officer of Cenovus Energy, told reporters at a Toronto investment symposium that his company’s C$17.7 billion March deal for ConocoPhillips assets gives Cenovus “complete control of our future in the oil sands.”
He said Cenovus is now concentrating on squeezing greater efficiencies by embracing big data and automation.
At the same event, Steve Laut, president of Canadian Natural Resources, fresh from its US$8.5 billion cash-and-shares transaction with Royal Dutch Shell, believes the industry is now “moving back to a more stable time. Canadian companies are well positioned.”
He said the transformation under a handful of companies - consultancy Wood Mackenzie said more than 70 percent of oil sands production will soon be divided among Cenovus, CNR, Imperial Oil and Suncor Energy - will improve project execution, lower costs and advance innovation.
“The advantage is we are committed and we are very focused,” he told reporters. “We are committed to R&D and to get those technology breakthroughs. We are going to make it happen.”
Chevron could be next out The next in the exit line could be Chevron, which Reuters, quoting unnamed sources, said is exploring the sale of its 20 percent holding in the Athabasca Oil Sands Project.
Chevron is reportedly holding discussions with investment banks in the hopes of fetching C$2.5 billion from a deal, apparently because it finds the oil sands to be a drag on its profits.
Others who have made either a wholesale pull-out or are divesting large percentages of their holdings include the U.S.-based ConocoPhillips and Marathon Oil, along with Netherland’s-based Royal Dutch Shell, France’s Total and Norway’s Statoil, while state-owned China National Offshore Oil Corp. is said to be quietly shopping its Nexen assets.
Investor concern Speaking to investors who are worried about the exodus of foreign players on the competitiveness of the oil sands against the Permian basin, Brazil and Saudi Arabia, Laut said Canada can draw solace from Canada’s environmental, employment and safety standards over the long haul.
He said the regulatory demands do not prevent companies from achieving higher levels of efficiency and effectiveness.
Laut predicted that oil prices will gradually work their way into a US$50-US$60 range, helping stabilize operations.
Ferguson played down concerns about the debt financing Cenovus is taking on to close its ConocoPhillips deal, pointing to the company’s investment-grade rating from Standard & Poor’s, DBRS and Fitch, adding that 75 percent of the permanent financing was in place by early April.
To help deleverage the balance sheet, Cenovus plans to divest C$3.6 billion of assets from its existing conventional portfolio and is attracting many calls from prospective buyers, he said, adding that a 10-, 20- and 30-year unsecured-note financing earlier in April was oversubscribed.
Asked about his concerns if there is a further drop in oil prices, Ferguson said Cenovus is keeping C$1 billion in cash and had C$3 billion available in its revolving debt to give the company a “strong contingency” in a low-price environment.
Consolidation aids costs Alister Cowan, chief financial officer at the oil sands powerhouse Suncor Energy, said the consolidation of projects will help drive down operating costs and make northern Alberta more competitive.
“Being able to increase (Suncor’s stake) at a very good price last year was, we thought, a great deal and we’ve now seen others take that strategy,” he said, referring to Cenovus and CNR.
Robert Johnston, chief executive officer of the Eurasia Group, a global political-risk consultancy, told the symposium that he expects to see the global oil market in a deficit by late this decade, with Canadian production looking more attractive as a result.
He said foreign-based companies are eying deepwater plays for long-cycle investments amid concerns about tightening carbon emissions in the oil sands.
Johnston said Cenovus will likely be very focused on how to make the oil sands work as opposed to 200 other plays around the world.
Of those who prefer to hedge their bets, Rob Symonds, chief operating officer for Husky Energy, said his company will diversify across the oil sands, heavy oil in Saskatchewan and natural gas in Asia.
He said Husky plans to retain 70 percent of the cost savings it won during the oil price downturn because of the structural change that has driven many investors away from the industry, compromising the operation of drilling rigs.
“There is a legitimate issue about whether people will come back,” Symonds said.
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