Shell's Canadian Natural Sale Removes Cloud Weighing on Shares

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(Bloomberg) -- Royal Dutch Shell Plc’s plan to sell its $3.3 billion stake in Canadian Natural Resources Ltd. put a dent in the oil-sands producer’s shares on Tuesday, but there’s a silver lining.

The impending sale removes a cloud that had loomed over Canadian Natural since Shell took the shares as part of a $7.25 billion deal last year and signaled it would dispose of them eventually. Now fund managers who shied away from the stock even as the company posted strong earnings may sell some of their other oil-sands holdings to pick up the newly available Canadian Natural shares, according to GMP FirstEnergy analyst Michael Dunn.

“Getting this share sale behind it should be nothing but good for the stock going forward, as the threat of this event was no doubt influencing Canadian Natural Resources’ relative ownership size in the funds of many a portfolio manager,” Dunn said in a note. He recommends buying the shares.

Canadian Natural has trailed its peers since the purchase of the Athabasca assets from Shell was announced in March of last year, rising 4.6 percent through Monday. Meanwhile rival Suncor Energy Inc. gained 22 percent, Husky Energy Inc. climbed 17 percent and MEG Energy Inc. advanced 13 percent.

On Tuesday, Canadian Natural tumbled as Shell’s offer represents a 2.9 percent discount to Monday’s closing price. The stock fell as much as 4.5 percent in New York to $33.54. In Toronto, the stock fell as much as 3.7 percent to C$43.58, and traded at C$43.91 as of 12:38 p.m.

Shell’s sale, priced at $34.10 (C$44.20) apiece for the American shares, would be Canada’s third-largest in the past decade. The transaction is being led by Goldman Sachs Group Inc., Royal Bank of Canada, Bank of Nova Scotia and Toronto-Dominion Bank.

The divestiture also is a reminder of the exodus of foreign capital from Canada’s oil sands, prompting industry soul-searching about its long-term competitiveness. Shell’s sale was just one part of a wave of deals that saw international oil companies divest more than $24 billion of Canadian assets last year. The Anglo-Dutch oil major had become Canadian Natural’s second-largest investor.

Those concerns have flared up this year as the pipeline projects the industry has long awaited have run into a fresh series of snags that threaten to delay their construction. The tight pipeline situation sent Canadian crude’s discount to the U.S. benchmark to the widest in four years in February, prompting Canadian Natural to restrain first-quarter oil production by about 17,000 barrels a day.

“A lot of companies are worried about the investment climate in Canada,” President Tim McKay told reporters after the company’s annual meeting last week.

©2018 Bloomberg L.P.

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