CNQ Canadian Natural Resources Ltd

Company pulls back from high-cost source in push to cut debt and tighten its focus

By Michael Amon and Sarah Kent 

LONDON -- Royal Dutch Shell PLC is selling nearly all of its Canadian oil-sands developments in deals worth $7.25 billion, deserting a region that has come to symbolize the risks for energy companies in high-cost, carbon-intensive sources of oil.

The deal marks a another milestone in an ambitious plan by the British-Dutch oil producer to sell off $30 billion of assets by next year to help pay down debt and streamline the company following its roughly $50 billion acquisition of BG Group PLC in 2016.

Selling the Canadian assets also cements a shift by Shell toward deep-water oil projects and the fast-growing liquefied natural gas market.

"We want to be a player that is world-class in integrated gas, world-class in deep water," Shell Chief Executive Ben van Beurden said in an interview at the CERAWeek conference in Houston. "We want to have a large petrochemical portfolio. Over time we want to be a world-class new energies player. There's only so many things you can aspire to be at scale at and put money into."

Shell is pulling back from the Canadian oil sands only weeks after its biggest rival, Exxon Mobil Corp., signaled that some of its planned production had become unprofitable there at current prices, and removed about 3.3 billion barrels of oil from its stated reserves mostly as a result of the oil sands.

In the deals announced Thursday, Shell is selling a host of oil-sands developments to a subsidiary of Canadian Natural Resources Ltd., a Calgary-based company with significant oil-sands interests. The deal includes Shell's Carmon Creek, a project it abandoned in 2015 with a write-down of about $2 billion as oil prices crashed.

The moves by Shell and Exxon highlight a stark reversal of fortunes for Canada's oil sands. In the decade leading up to the oil-price collapse of 2014, some of the world's biggest energy companies raced to build megaprojects in northern Alberta, spending an estimated $200 billion to tap reserves of heavy oil.

But the oil sands' high fixed costs and emissions levels, and the long time horizons required to deliver a return on investment, have deterred new spending there and made reserves less profitable to tap.

Canada's oil output isn't expected to fall, because projects that were already being built continue to add new barrels. But more than 17 oil-sands projects that would have added about 2.5 million barrels a day have been canceled or delayed, according to Arc Financial. Companies have taken write-downs that total more than $20 billion since 2012.

Tough new environmental rules, including a cap on emissions and a carbon tax, are also chilling investment.

In an interview before the Shell announcement, Alberta Premier Rachel Notley said she was encouraged by signs of investment returning. Ms. Notley pointed to recent moves toward building a pipeline that would carry more Canadian crude to the West Coast as a positive sign for the industry, and said companies are also finding new ways to bring down costs.

They are also finding ways to reduce emissions, so that even with the introduction of a hard cap, "we can increase production while staying under the cap," she said.

Shell is retaining a 10% interest in one oil-sands project known as Athabasca, in a new joint venture with Canadian Natural. The partnership will buy the 20% stake of Marathon Oil Corp.'s Canadian subsidiary in Athabasca. Shell is also maintaining some processing facilities in Alberta.

Write to Michael Amon at michael.amon@wsj.com and Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

March 10, 2017 02:47 ET (07:47 GMT)

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