By Nia Williams and John Tilak
CALGARY, Alberta/TORONTO (Reuters) – As international energy companies retreat from the Canadian oil sands sector because of depressed oil prices, a fast-shrinking universe of potential buyers may leave some stranded in the high-cost, capital-intensive sector.
Global producers are bailing on their oil sands investments due to higher development costs, limited export pipeline capacity to get crude to market and concerns about high carbon emissions in the sector.
International companies once drawn by the long-life assets that can produce for up to 50 years during the oil sector boom are discovering the economics do not work as well in a low-price environment.
But to get out, they have to overcome a simple equation: there are more sellers than buyers for the oil sands.
The three biggest domestic producers – Suncor Energy, Canadian Natural Resources Ltd and Cenovus Energy – are digesting multi-billion dollar deals, and have little room for more acquisitions, industry participants say. Global companies like ConocoPhillips and Marathon Oil Corp prefer to pile into cheaper U.S. shale plays such as the Permian basin instead.
“The market is pretty thin for oil sands buyers,” said Janan Paskaran, an M&A lawyer at Torys LLP who advises domestic and international energy companies.
“There are three or four buyers out there that have said they are interested in increasing exposure to oil sands, but they’ve already done their shopping,” he added. “I don’t see any new entrants.”
BP Plc has joined Chevron Corp in weighing the sale of its oil sands stakes, Reuters has reported. This follows decisions by Royal Dutch Shell, ConocoPhillips and Marathon to dump about $22.5 billion worth of largely oil sands assets this year.