Canadian Natural Resources Limited announces that it entered into agreements, subject to regulatory approvals, to acquire 70% of the Athabasca Oil Sands Project (“AOSP”), including 70% of the Scotford upgrader, as well as additional working interests in other producing and non-producing oil sands leases.
Canadian Natural has agreed with Shell Canada Limited and certain subsidiaries (“Shell”) to acquire its 60% working interest in the AOSP including an interest in the mining and extraction operations, north of Fort McMurray, Alberta; the Scotford Upgrader and the Quest Carbon Capture and Storage (CCS) project located north of Edmonton,Alberta; and its 100% working interest in its Peace River/Carmon Creek thermal in situ operations, its 100% working interest in the Cliffdale heavy oil field as well as other oil sands leases.
Canadian Natural and Shell have also agreed with Marathon Oil Corporation (“Marathon Oil”) to jointly acquire its 20% share in AOSP and related oil sands investments. The acquisitions do not include any interest in the 100% Shell owned Scotford refinery or chemical plants. The total purchase price of the transactions accumulates to $12.74 billion as of the effective date.
The acquisitions are targeted to close in mid-2017. The aggregate consideration under the acquisition will comprise 97,560,975 common shares of Canadian Natural issued to Shell with a current value of approximately $4 billion, a combined pre-adjustment cash payment at close of $8.24 billion to Shell and Marathon Oil, and a deferred payment of US$375 million due in the first quarter of 2018 to Marathon Oil.
The current estimated production capability, before royalties, for the AOSP acquired properties is approximately 196,000 bbl/d with February production of approximately 188,000 bbl/d of mine production and upgrader output of approximately 195,000 boe/d from a 70% working interest in AOSP; and approximately 13,800 bbl/d of heavy oil from the 100% owned Peace River properties.
Commenting on the acquisition, Canadian Natural’s President Steve Laut stated, “This transaction is significant for Canadian Natural as it increases the reliability of underlying sustainable cash flows associated with Oil Sands as demonstrated by our Horizon operations. Further, these transactions are beneficial and positive for all stakeholders as it allows focus on the key operating strengths of both Shell and Canadian Natural to deliver efficient and safe operations. Canadian Natural together with Shell and Chevron will be able to optimize both Horizon and Albian mine operations. In addition, Shell, as operator with Canadian Natural’s and Chevron’s cooperation will be able to optimize the operations of the Scotford Refinery and Upgrader complex, leveraging Shell’s Global top tier Refinery and Upgrading expertise.
Over time opportunities will be explored to increase the capacity of the Upgrader so that more barrels of bitumen which are produced in Alberta will be upgraded in Alberta. Canadian Natural also expects to be able to achieve efficiencies in mine operations - having two mining operations in close proximity at Horizon and Albian to deliver a combined, more effective and efficient operation that each mine cannot achieve on its own. Canadian Natural currently delivers top tier reliability, utilization, effectiveness and efficiency in mine operations at Horizon. ”
Corey Bieber, Canadian Natural’s Chief Financial Officer added, “It is a rare opportunity to be able to acquire a World Class Oil Sands mining and upgrading asset like AOSP. Unlike a greenfield development, there is no execution and construction risk or delays - this transaction is immediately cash flow and earnings accretive to Canadian Natural shareholders. The way the deal has been structured also facilitates immediate improvement to most of the Company’s key credit indicators.
In conjunction with the acquisition and assumption of Operatorship of the oil sands mines and in situ lands, Canadian Natural will welcome approximately 3,100 employees from Shell and Marathon Oil, with approximately 2,760 located at the Mines, 110 located in the Peace River in situ region and 230 in Calgary.
The AOSP mines comprise the Jackpine and Muskeg River Mines as well as other nearby mineable leases which use truck and shovel bitumen mining with a paraffinic bitumen extraction process. Canadian Natural will take over as operator on these assets. The associated upgrader is located in Scotford, Alberta and is connected via a dedicated diluted bitumen delivery with a reverse loop to send diluent back to the mine sites.
There is significant opportunity for growth in the mining operations with the Jackpine mine expansion, which has regulatory approval for 100,000 bbl/d of production capability.The upgrader will retain Shell as operator and utilizes LC Fining technology to efficiently hydrocrack residuum to high-quality fuel oils and transportation fuels. Based upon a bitumen input capacity of 280,000 bbl/d, the upgrading process results in output of approximately 150,500 bbl/d of Premium Albian Synthetic crude oil, 60,000 bbl/d of Vacuum Gas Oil, and 78,600 bbl/d of undiluted Albian Heavy Synthetic crude oil as well as 4,600 boe/d Off-Gas.
The associated Quest Carbon Capture and Storage project results in a 30% reduction in CO2 equivalent emissions.Along with the AOSP assets, Canadian Natural is acquiring numerous other heavy oil operations and oil sands leases of various working interests. Canadian Natural is acquiring 100% working interest in the Peace River and Cliffdale in situ operations which are together currently producing approximately 13,800 bbl/d with further opportunities to develop. Other assets include the Carmon Creek thermal project associated with the Peace River complex, which will be reviewed for future development. Other longer term in-situ projects such as the Namur, 94% working interest, and 100% working interest in Birchwood are assets complementary to existing Horizon oil sands leases and increase synergy for future opportunities in the area.