Canadian Oil-Sands Giant Extends Reach in $2.8 Billion Devon Deal

(Bloomberg) -- Canadian Natural Resources Ltd. is extending its dominance of the country’s oil and gas industry as energy mogul Murray Edwards strikes a C$3.8 billion ($2.8 billion) deal for Devon Energy Corp.’s Canadian business.

The takeover comes during a turbulent period for the oil-sands industry. It gives CNRL control over assets that had net production averaging 113,000 oil-equivalent barrels in the first quarter, the companies said Wednesday. At the end of last year, proved reserves associated with the properties amounted to about 409 million barrels.

Edwards, CNRL’s chairman and largest individual shareholder, has helped build the company into Canada’s largest energy producer. Its output has grown to more than 1 million barrels a day as he has scooped up assets during rough stretches for the industry. Canada’s oil sector is currently struggling with a shortage of pipeline capacity that sent local crude prices spiraling downward last year, prompting Alberta’s government to impose an unprecedented production cut.

The Devon assets “fit well with Canadian Natural’s land base, and we believe that the company can look to repay leverage quickly with its free cash flow,” Canaccord Genuity analyst Dennis Fong said in a note to clients.

What Bloomberg Intelligence Says

“Canadian Natural’s planned C$3.8 billion acquisition of most of Devon’s Canadian assets adds 128,100 barrels a day of crude production capacity at a discounted price and helps CNRL compete with Suncor for the top spot in the oil sands.”
-- Michael Kay, BI Senior Industry Analyst, and Jonathan Mardini, BI Associate Analyst

The deal is Canadian Natural’s largest since it bought most of Royal Dutch Shell Plc’s oil sands production capacity for $8.16 billion in 2017. Canadian Natural rose 4 cents to C$35.49 at 10:21 a.m. in Toronto trading, while Devon was down 14 cents to $26.46.

Under Edwards, 59, CNRL has snapped up Canadian assets from Marathon Oil Corp., Anadarko Petroleum Corp. and BP Plc. His CNRL stake is valued at about C$778 million, based on yesterday’s closing price. He also owns Canadian Rockies ski resorts, part of the Calgary Flames hockey team and is the largest shareholder of oilfield-services company Ensign Energy Services Inc., with a C$148 million stake.

Devon has long signaled a desire to exit Canada and said in February it planned to sell or spin off its assets there this year. The Oklahoma City-based driller said it plans to use the proceeds from Wednesday’s deal to reduce debt and focus on “high-return U.S. oil growth.”

Devon is also divesting its Barnett Shale gas assets in Texas. Data rooms for the Barnett will open shortly, and Devon expects to exit the assets by the end of the year.

Devon’s Canadian land and facilities are within Canadian Natural’s core production areas, allowing the Calgary-based company to curb costs while boosting output. The transaction is due to close by the end of the second quarter.

The deal continues a trend of international companies leaving Canada’s oil-sands, which have been hurt by the pipeline shortage, high costs and a reputation for being environmentally unfriendly.

However, Canaccord’s Fong said the trend helps local producers, who can get more out of the assets.

“The consolidation in the oil sands will likely drive efficiencies for further development especially from a smaller group of experienced companies which can build on synergies,” Fong said.

--With assistance from Michael Bellusci and Amanda Jordan.

To contact the reporter on this story: Kevin Orland in Calgary at korland@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Joe Carroll, Joe Ryan

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