Oil sands buyouts pay off with higher output, lower costs

Oil sands buyouts have resulted in more efficient operations

Canadian companies who bought out global oil majors in some Alberta oil sands operations are reporting higher output and reduced operating costs in the wake of the much maligned buyouts.

In March, CNRL, Shell and Marathon announced the $12.74 billion deal which saw the Canadian company purchase Shell’s 60 per cent share in the Athabasca Oil Sands Project.

The deal included a mine north of Fort McMurray and Scotford bitumen upgrader and Quest carbon capture project northeast of Edmonton owned by Shell.

As well, CNRL along with Shell bought Marathon’s 20 per cent interest in Athabasca.

On Thursday, CNRL posted a third quarter profit that beat analysts’ expectations.  CNRL posted a profit of 19 cents per share, more than double analysts’ expectations of a 9-cents average projection.

The company said it has reduced its operating costs at its Athabasca Oil Sands Project to C$24.60/barrel from C$27.50/barrel in Q2.

Also in March, Cenovus bought out ConocoPhillips’ oil sands assets for an eye-popping $17.7 billion.

The assets included ConocoPhillips’ 50 per cent interest in the FCCL Partnership, the oil sands venture jointly owned with and operated by Cenovus, and the majority of ConocoPhillips’ Deep Basin conventional assets in Alberta and BC.

Cenovus recently posted higher-than-expected third quarter results after trimming its planned capital spending for 2017 by $100 million with no expected impact on production.

Cenovus’s profit hit 28 cents/share, higher than analysts’ expectations of 10-cents.

After investors voiced concerns about the massive purchase, the company spent the second quarter selling off some assets to pay down the $3.6 billion bridge loan incurred in the Conoco deal.

In September, CNRL paid Cenovus $975 million for the Pelican Lake heavy-oil asset and International Petroleum Corp. purchased the Suffield assets for $512 million.  Last month, Cenovus’s Palliser field was sold to Schlumberger Ltd. and Torxen Energy for $1.3 billion.

Cenovus is still marketing its Weyburn operation and says it may consider selling other assets, including gross overriding royalties and Deep Basin infrastructure.

According to a Bloomberg report, Cenovus and CNRL argue that full ownership of these projects allow them to operate more efficiently as well as compete against other production methods.

Last week, oil sands giant Suncor also posted positive third quarter results on the company’s Syncrude production rising to full capacity.  At 52 cents per share, the Calgary-based company beat analysts’ expectations of 34 cents per share.

CNRL also announced it has completed another phase in the expansion of its Horizon mine.  Production is expected to ramp up in the coming months and the expansion is expected to add 80,000 barrels of oil per day.