While observers may regard Royal Dutch Shell’s sale of its oil sands assets to Canadian Natural Resources Ltd (CNRL) as an ill omen, the terms of the selloff could be a signal of cautious confidence in the industry.
As Shell retreats to focus on decreasing its sizable debt through quick-return opportunities, it seems to be betting on CNRL’s ability to thrive in a tough business, according to the Globe and Mail. By agreeing to accept shares in CNRL as part of the payment in the selloff, Shell is retaining exposure to resources and capital it has used for years.
Essentially, this means that CNRL’s success — which is probable given CNRL Chairman Murray Edwards’ record of picking off assets that have fallen out of favour and getting them to operate effectively — would benefit Shell as well.
Investor pessimism concerning the oil industry has kept bids on oil assets low. This has created a gap between buyers’ and sellers’ views on value, which has kept merger and acquisition activity depressed. The practice of accepting shares as payment among sellers helps narrow the bid-ask spread, increasing the chances of deals pushing through.
The CNRL deal is the second such transaction Shell has entered into in Canada. The global oil titan previously sold British Columbia and Alberta natural-gas properties worth $1.4 billion to Toumaline Oil, accepting about $400 million in Toumaline stock as part of the payment. The cash-plus-equity structure of the payment was suggested by Mike Rose, CEO of Toumaline, who like Edwards has maintained a reputation for shrewd deal-making throughout the oil downturn.
In a move similar to Shell’s, Norwegian multinational oil outfit Statoil ASA sold its oil sands assets to Calgary-based Athabasca Oil, a deal valued at up to $832 million. Statoil agreed to acquire 100 million Athabasca shares, giving it an approximately 20% stake in the company.
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