Devon Energy Corp. has put its Alberta oil sands and heavy crude operations on the auction block, adding to an exodus of foreign oil and gas companies from the Canadian oil patch.
Oklahoma-based Devon said it has hired financial advisers to help it seek buyers for the Canadian business, which includes the sizable Jackfish steam-driven oil sands project and a smaller heavy oil operation. The assets could fetch $4-billion to $4.5-billion, according to one estimate.
It also plans to sell a natural gas operation in the Barnett Shale area of Texas, which was once one of its main assets.
The move comes as the industry struggles with years-long delays in expanding export pipelines in Canada and with oil and gas prices stuck below those in other international markets. Anglo-Dutch oil major Royal Dutch Shell PLC, Norway’s Equinor ASA (formerly called Statoil), as well as U.S. producers ConocoPhillips, Murphy Oil Corp. and Marathon Oil Corp. have all jettisoned their oil sands assets in recent years.
The exit of foreign players shows oil-industry fortunes can be made more easily elsewhere, where operations can generate cash more quickly and for far less capital investments, said Michael Dunn, analyst at GMP FirstEnergy. This is a major shift from 2000-10, when foreigners created an investment boom in the oil sands.
“Texas is beating Alberta, on field-level economics and on egress,” Mr. Dunn said. “The flavour of the day is definitely not Canadian oil sands. The faster money, the shorter-term economics are generally better elsewhere. So that’s when money moves and companies adjust their strategies.”
Dave Hager, Devon’s chief executive officer, said the sale will transform the company into a purely U.S. oil and gas producer. It aims to complete the “separation” of the Canadian assets by the end of the year so the company can concentrate on shale assets such as the Eagle Ford in Texas and Stack in Oklahoma, he said.
The sale process comes at a tough time for the oil sands sector, which has struggled with volatile price differentials to benchmark U.S. light-oil. The Alberta government has stepped in by forcing cuts to heavy oil production as a way to rescue prices, a move that has created a fissure between companies supporting the move and those wanting market to sort itself out, a group that largely includes refiners. Amid the malaise, stock prices have languished while those in the United States have performed better. Devon stock surged 8 per cent after the announcement.
At least one other recent oil sands sale fell through. Oil sands producer MEG Energy Corp. sought a higher offer after a hostile bid from Husky Energy Corp. in the final months of 2018, but last month conceded it attracted no rival bidder. In the end, Husky also opted to walk away. That failed process, along with an undercurrent of negative investor sentiment about Canada’s energy industry, raises questions about whether Devon could attract a premium bid.
“We’re not going to give this asset away,” Mr. Hager told analysts on a conference call on Wednesday. He said Jackfish, which produces about 100,000 barrels a day, rates among the top 10 per cent of projects that employ steam-assisted gravity drainage technology to extract bitumen, so it should be coveted by rivals.
“Assets like this don’t come to market every day, and we think that’s going to be recognized by the potential purchasers – what a high-quality asset this is. I think, frankly, there are a number of people who are looking at this business for the long term, who understand that," Mr. Hager said.
Devon intends to begin the formal process by opening up a data room by the end of March. It has hired JPMorgan Securities and Goldman Sachs to assist it. Analysts said three of the incumbent oil sands producers – Husky, Imperial Oil Ltd. and Canadian Natural Resources Ltd. – are likely to examine Jackfish, located south of Fort McMurray, and the heavy oil assets near Llyodminster. The three declined comment.
Given current market conditions, a sale would likely be in the $4-billion to $4.5-billion range, said Jon Morrison, analyst at CIBC.
“There has been a view in the market that Jackfish has been softly up for sale for a while,” Mr. Morrison said. “We wouldn’t know whether Devon has been made an offer but even if that were the case, unless the company was completely satisfied with such an offer, it is natural for them to move into a formal sale process.”
A deal would complete Devon’s exit from Canada, where it has 750 employees, 400 of them in Calgary. It sold its conventional Western Canadian natural gas assets to CNRL for $3.1-billion in 2014. Two years later, it sold its half stake in the Access oil sands pipeline to Wolf Midstream, a company backed by Canada Pension Plan Investment Board, for $1.4-billion.Devon’s Canadian-born chairman and former CEO, John Richels, is also set to retire this year.
At least one other foreign player is said to be re-evaluating Canadian operations as conditions remain weak. Repsol SA, the Spanish oil company that acquired Calgary-based Talisman Energy Inc. for US$8.3-billion in 2015, has set a strategy to improve its profits by “high-grading” its global portfolio.
“So that means that we are taking advantage of this situation to reduce the scope of countries where we operate to increase the margin per barrel,” Repsol CEO Josu Jon Imaz told analysts late last year.
Ivan Corral, a Madrid-based spokesman for Repsol, declined to say if sales of Canadian assets are in the works.